Demand for tax-efficient investments is growing, and increasing flows into Enterprise Investment Schemes (EISs) and Seed Enterprise Investment Schemes (SEISs) are testament to this trend.
According to the most recent HM Revenue & Customs (HMRC) data, more than £1bn was invested in EISs in the 2011-12 tax year, the highest for a decade. This figure was nearly double the amount raised in the previous year.
Unofficial data and anecdotal evidence suggests the upward trend is continuing and that EIS flows may have climbed to roughly £1.5bn in 2013-14.
At a sector level, the solar industry has been one of the main recipients of EIS money over the past few years – accounting for more than half the money invested in the past tax year, according to some reports. This is because the government subsidies paid to solar projects and other forms of renewable energy, under the Renewable Energy Certificate (Roc) system, coupled with the tax reliefs available from EIS, created a practically risk-free investment.
Perhaps for that very reason, the government this year withdrew EIS eligibility from projects that also qualified for subsidies under the Roc regime. As far as EIS goes, investing in solar is now dead.
So what were the main attractions for solar for investors and their advisers? One of the big draws was that most, if not all, solar EISs came with a planned exit after three years, giving investors certainty over when they would get their money back and potentially enabling them to rollover their investments into new EISs and gain further tax relief.
Exit dates could be planned because payments under the Roc regime were highly dependable and predictable, so long as a solar project generated power.
The other main benefit was the low investment risk – something with which EISs are not typically associated with – as a result of the secured Rocs and initial 30 per cent income tax relief.
This now leaves financial advisers and intermediaries with a challenge – where to find a suitable alternative to solar with a similar risk profile for their clients’ EIS money that has been approved and passes muster with HMRC?
The film industry may offer a solution for investors, even though the sector is sometimes perceived as having a chequered history. In reality, film is an investment like any other and should be approached in this way. If you do it well, investing in film and television projects through an EIS can generate secure, low-risk, dependable returns.
What are the risks and how can they be mitigated?
Films can lose money for several reasons – they may do less well than expected on distribution, their sales may not cover costs, a distributor may be unable to make payments or the production itself could run into difficulties and the film not be completed.
The best way to avoid unprofitable or problematic projects or issues with distributors is through a rigorous, robust and disciplined investment strategy. This means focusing on films with commercial appeal, an identifiable audience, relatively low and controllable costs and a sound financial structure.