Obtaining SEIS & EIS advance assurance approval for a film production company - Jonathan Lea Network
Author: Jonathan Lea | Managing Director, Senior Corporate & Commercial Solicitor
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Obtaining SEIS & EIS advance assurance approval for a film production company

How we assisted a film production company obtain SEIS and EIS advance assurance approval from HMRC.

The scenario

Given our experience in the SEIS / EIS sector, we are regularly contacted by TV and film production companies who are seeking advance assurance but which have been dissuaded from pursuing such a course of action given growing concerns that SEIS / EIS tax reliefs are no longer available to companies that operate in this space.

Such uncertainty is definitely well founded, considering that HMRC have seemed to clamp down on providing advance assurance to TV and film production companies following the introduction of the ‘risk-to-capital’ condition.

Having received advance assurance for TV production companies in the past, we have identifiable proof that such media based companies can still qualify under the SEIS / EIS regimes. However, the application that is the subject of this case study is the first advance assurance application we have submitted to HMRC in relation to a company that focuses solely on film production.

HMRC clearly envisage film production businesses being qualifying companies under both the SEIS and the EIS, given that in one of their guidance manuals they provide an example of a qualifying film production company. Therefore, provided that the company is structured in such a way so that it is analogous to the qualifying film production company given in HMRC’s example, theoretically it should still be possible to obtain advance assurance approval in respect of such a company (despite the nature of its trade).

How we helped / what we did

We took our client in this case through our internal procedures in the usual way, requesting all relevant information from them (such as a business plan / pitch deck document explaining the company’s business, an expenditure spreadsheet detailing where the investment monies will be spent, details of the company’s shareholders and so on).

It was essential in this case that in our detailed covering letter (which we submit as part of all advance assurance applications) we made clear how the company in question was analogous to the qualifying film production company that HMRC detail in their guidance manual. We therefore inserted a lengthy section into our covering letter explaining the similarities between our client’s company and the qualifying film production company given in the example.

HMRC want to see that film production companies are growing and developing in their own right. If you simply state that the company will produce either a single project or a slate of projects, with the proceeds from the previous project funding the latest one, your advance assurance application is more than likely doomed for failure. We therefore made clear throughout our covering letter that the company had plans in place to expand and become self-sufficient in its own right. We provided evidence for this by explaining that the company would put some of the investment monies towards recruiting full time employees (such as a head of marketing, an accountant and a lawyer), which demonstrated that the company had plans in place to expand its internal infrastructure and grow its full time retained team.

Having ensured that the company had provided all necessary supporting documents and that our covering letter contained all of the appropriate arguments, we submitted the application to HMRC.
In response, HMRC sent us a detailed response letter in which they requested additional information. The additional information that HMRC requested spanned across a total of 19 questions, a few of which had been subdivided into parts. Despite the fact that HMRC had come back and provided a detailed response letter, we found it encouraging that the application had not been rejected outright.

Given the length of the response letter, it was clear that in most cases, companies would either discontinue the application or would supply HMRC with an answer or supporting document which it could use to ultimately reject the application outright. HMRC even set a deadline by which the company had to respond by, following which (if they had not received a response), they would assume that the company did not intend to carry on with the application.

We advised our client that the best thing to do in the circumstances would be to provide HMRC with every document they had requested and for us to draft a supplementary response letter setting out detailed responses / rebuttals to each of their questions and points raised.

We drafted a cover letter of 10 pages in length setting out clear and detailed responses to each of HMRC’s points, ensuring that we made further references to HMRC’s guidance manuals where appropriate and reaffirmed the points that we had made in our initial covering letter as to why we believed that the company should be determined to be a qualifying company under the SEIS / EIS regimes.

The outcome

Following the submission of our response letter, HMRC responded by confirming that the company’s application for SEIS and EIS advance assurance had been approved. It is important in this case to note that the company was also in receipt of film tax credit and this was clearly not a barrier to them receiving advance assurance (as some commentators on this area suggest).

Despite our best efforts to avoid this in all cases, we are seeing more and more that HMRC are responding to advance assurance applications requesting further information and asking additional questions about the company and its business. In some situations, the questions they ask can require a lot of thought and consideration of / reference to the specific SEIS / EIS rules and guidelines is always necessary. We often find (as the eventual outcome in this case demonstrates) that provided you give HMRC detailed and persuasive responses to their queries, you can usually obtain the advance assurance approval sought.

We now have irrefutable evidence that companies which exclusively carry out film production activities can qualify under the SEIS and EIS regimes, provided that the company is structured in the right way and HMRC are provided with detailed, persuasive and reasoned arguments as to why the company should qualify.

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