SEIS and EIS for Film Projects
The Seed Enterprise Investment Scheme and the Enterprise Investment Scheme (SEIS and EIS) are powerful tax-relief programmes that film and television companies can potentially use to attract investors. However, specific criteria, such as demonstrating long-term growth potential and significant risk to capital, can make it challenging for project-based production companies to qualify. To improve chances, companies must focus on building a sustainable business model rather than seeking investment for individual films.
Harnessing SEIS and EIS for Film: Unlocking Growth and Investment Opportunities
Film and television companies have long struggled with funding, often relying on private investors, grants, or complex co-production agreements. However, two government-backed schemes, SEIS and EIS, offer tax incentives to investors in small businesses, making these schemes particularly attractive to those in the creative industries. But how can film companies leverage SEIS and EIS to attract investment, and what challenges stand in the way?
The key to understanding SEIS and EIS lies in their purpose: to stimulate investment in early-stage companies by offering tax breaks to investors. SEIS allows investors to claim back up to 50% of their investment as income tax relief, while EIS offers 30% relief. Both schemes also provide exemption from capital gains tax if the shares are held for at least three years. For investors, this means the risk associated with backing young companies is significantly mitigated. But for film companies, the question is: how can they align their business models to meet SEIS and EIS requirements?
The “Risk to Capital” Challenge
One of the most significant hurdles for film and television companies is the “risk to capital” condition, introduced by HMRC in 2018. To qualify for either SEIS or EIS, companies must demonstrate that they are taking a genuine risk with the investment, and that there is a substantial possibility the capital could be lost. Furthermore, the company must be focused on long-term growth and development, rather than one-off projects.
This is where the challenge arises for production companies. Many film companies operate on a project-by-project basis, where funding is raised for a specific film, and profits (if any) are distributed once the project is completed. This model does not fit neatly into the long-term growth criteria set out by HMRC. A company that exists solely to produce one film is unlikely to qualify for SEIS or EIS because it lacks a sustainable growth plan outside of that single project.
Qualifying for SEIS and EIS: Building a Long-Term Vision
So, how can film companies adjust their approach to benefit from these schemes? The key is in the business structure. Instead of focusing on individual films, companies should position themselves as growing businesses with a broader portfolio of activities that contribute to long-term development.
For example, a film company could qualify for SEIS or EIS by using investment not just to fund one film, but to expand its operations in a way that ensures future growth. This might include hiring permanent staff, investing in new equipment, developing a slate of projects, or even establishing an in-house distribution arm. These activities demonstrate a commitment to growth beyond one project and show investors and HMRC that the company is taking on real risk with the expectation of long-term returns.
In essence, film companies must think beyond the next production and consider how they can develop a scalable, sustainable business. This requires careful planning and a strategic approach to investment, but the rewards in terms of attracting investors and securing tax-efficient funding are significant.
Advance Assurance: Securing Investor Confidence
Once a film company has aligned itself with the requirements of SEIS or EIS, the next step is to seek advance assurance from HMRC. Advance assurance is not mandatory, but it offers potential investors confidence that the company will qualify for SEIS or EIS once they invest. It acts as a green light for investment, ensuring that investors can claim their tax relief.
However, it’s important to note that HMRC has the discretion to approve or reject applications. Even if a company believes it meets the criteria, there’s no guarantee that it will receive advance assurance. Therefore, companies are encouraged to work closely with tax specialists or financial advisors who can help navigate the complexities of the application process.
Why SEIS and EIS are Key for the Future of British Independent Film
The British film industry is known for its creativity and talent, but it often operates on tight budgets. SEIS and EIS offer a valuable lifeline for small and medium-sized film companies, enabling them to attract private investment that can fuel their growth. For companies willing to evolve beyond project-based funding, these schemes open up new avenues for securing the capital needed to scale and thrive.
For the wider industry, the success of film companies utilising SEIS and EIS can have a ripple effect, leading to more jobs, increased production output, and a stronger overall market. Investors are more likely to back companies that offer tax incentives, which in turn brings fresh capital into the sector. This is particularly important in an industry where financing can be difficult to secure, and where traditional funding routes are often oversubscribed or limited to high-profile projects.
Avoiding Common Pitfalls
While SEIS and EIS are attractive, they come with strict rules. Companies must ensure they are compliant with all conditions to avoid jeopardising their eligibility. For instance, SEIS is only available to companies that have been trading for less than two years, and both schemes cap the amount of money that can be raised from investors (£150,000 under SEIS and £12 million under EIS).
Additionally, companies must not offer preferential shares to investors or guarantee returns, as this would violate the “risk to capital” condition. It is vital to maintain transparency with investors and HMRC throughout the process, ensuring that all requirements are met to protect the benefits these schemes offer.
Conclusion: The Path to Growth and Investment
SEIS and EIS provide an excellent opportunity for British film companies to attract the investment they need to grow. However, qualifying for these schemes requires careful planning and a long-term vision. Film companies must focus on creating a sustainable business model that goes beyond individual projects, positioning themselves for long-term success.
For those in the film industry looking to benefit from SEIS and EIS, now is the time to rethink how you structure your business. At Ecaveo Capital Partners, we specialise in helping companies like yours secure investment through innovative strategies aligned with SEIS and EIS requirements. If you’re ready to unlock new funding opportunities, get in touch with us today to learn how we can support your growth and long-term success.
What next?
Ready to take your film company to the next level with SEIS and EIS? Contact Ecaveo Capital Partners today to learn how we can help you structure your business for success and secure the investment you need.