When the new risk to capital condition was introduced to the Enterprise Investment Scheme (EIS) from April 2018, there was a fairly widespread assumption that it was the end of the line for EIS investment into film and media projects.
This was because many standard industry practices made businesses in this sector ineligible for EIS investment, in particular the use of pre-agreed contracts (thus reducing the risk to investors) and the creation of individual special purpose vehicles for one production only (ie without any long-term growth).
Less than 18 months later, and it seems the death of EIS in film and media has been greatly exaggerated.
Research carried out for our upcoming EIS Industry Report 2019/20 (to be published this November) found that while the market has seen a significant reduction in the number of EIS products including film & media investments as part of their portfolios, some have shown in recent months that the sector remains viable.
Nowhere was this more clearly demonstrated than with the launch in June of the UK Creative Content EIS Fund, introduced by Calculus Capital and Stargrove Pictures, in conjunction with the British Film Institute (BFI). This fund has advance assurance from HMRC and passed the risk to capital condition, even with the risk mitigation of film tax relief.
However, this is not an anomaly that snuck through advance assurance when HMRC wasn’t looking: Great Point Investments has put EIS money into three projects, while Acamar Films – creator of CBeebies programme Bing – has also undertaken an EIS fundraising in recent months.
And while some believe that HMRC is making life difficult for them, Mark Brownridge, director-general at the EISA, believes that HMRC remains keen for the sector to succeed.
“During the Patient Capital Review, we spoke to HMRC and they said they liked the film and media sector, just not the structure of those companies. So they and the industry have spent a lot of time trying to get comfortable with how it works. If the investee company is structured properly, HMRC will be happy.”
Brownridge is referring here to short termism associated with individual special purpose vehicles for one production only, designed to limit risk and without growth ambitions.
Brownridge adds that this means the sector could yet have an important role to play in EIS investments. “I think the sector will come back in a new guise,” he says, “although it probably won’t be a big as it once was.”
Indeed, Brownridge has high hopes for the EIS market in general following the new risk to capital rules. While acknowledging that the market could see a fall in annual investment levels of around £350 million in next year’s figures, he suggests that the market will start to rise again soon after.
“With education and information for advisers, it will hopefully be a blip. A lot of advisers have been weaned on capital-backed EIS, so we and the wider industry need to go on that education journey with advisers.
“The long-term trend will be back up to £2 billion,” he continues, referring to the level reached in 2018-17. “I don’t think it will ever go massively above that,” he concluded, referring to the size and scale of investments carried out under EIS.
The EIS Industry Report will be published in November, coinciding with our next round of EIS Showcase events, giving advisers the chance to hear from up to eight leading fund managers at six venues across the country. For more information on these and to book your place, click here.