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How tighter investment regulations are benefiting the UK screen industry

How tighter investment regulations are benefiting the UK screen industry

It has been yet another outstanding year for British screen talent – crowned by Olivia Colman scooping an Oscar for her role in successful homegrown production The Favourite.

The screen industry is currently worth almost £8bn a year to the UK economy and growing faster than almost any other sector.

The UK has some unique advantages – the English language, supportive government and a well-established, sophisticated infrastructure.

With subscription streaming giants like Netflix and Amazon funnelling vast amounts of money into the creation of premium content – and blurring the lines between film and TV in the process – the growth prospects look even more exciting.

This is exciting for investors too, but there is an obvious challenge.

Advisers and clients could be understandably nervous about tax-efficient investing in this sector after HM Revenue & Customs’ well-publicised challenges to historic models.

In April last year new regulations also came into place that tightened up what HMRC considered to be loopholes in the enterprise investment scheme (EIS) legislation.

The Treasury was clear: the generous tax benefits associated with EIS – like 30 per cent income tax relief, capital gains tax-free profits, loss relief and no inheritance tax on shares after three years – come at a price.

They are there to attract investors willing to take on some investment risk to help Britain’s most promising young companies.

Funding gap

For a while, the screen industry was concerned. Last year the British Film Institute Commission for UK Independent Film, convened by the British Film Institute and chaired by Lionsgate UK chief executive Zygi Kamasa, explored options to source funding for screen businesses.

The BFI recognised there was a funding gap.

It administers National Lottery money to support filmmakers at an early stage, but BFI chief executive, Amanda Nevill, says: “The needs for producers from a financial perspective goes way beyond our remit as a lottery funder. We’re investing in talent from the earliest stages of their careers before they walk onto the stage and pick up an Oscar, but we are acutely aware that where there is a need for investment is in enabling screen content companies to scale their businesses to the next level.”

This is where EIS money can help.

Historically, funds intended to preserve investor capital mostly supported individual projects, something known in the industry as ‘project finance’.

While this money was able to get individual films over a cash flow hump and into cinemas, it did little to support long-term growth and the establishment of fully-fledged companies with a legacy beyond the date of a premiere.

Under the new rules, EIS funding will have to go into entrepreneurial companies.

The challenge these companies have always faced is generating the production capital to expand their infrastructure and develop the intellectual property – the storylines, the characters – to sell to streamers, broadcasters and distributors.