Saturday, 16 August 2014

How to Get The Taxman to Finance Your Independent Animated Feature Film

Anyone who has tried to raise money for a film project knows that this can be the hardest part of the whole enterprise. Yes, you may have a great idea, but finding the money needed to bring it to life is no easy task. For anyone in the UK trying to finance an independent film (and every self-respecting animator has a story in them somewhere) - a working knowledge of how the system works is pretty much essential. Sure, you will need a producer to help you out, but knowledge is power, so you need to get educated. One of the best ways to finance your film is called EIS - and it is an excellent way to get the taxman to help pay for your project.

What is EIS? 
EIS stands for Enterprise Incentive Scheme. It is a tax-efficient vehicle authorised by HMRC (That's Her Majesty's Revenue & Customs) for financing new enterprises, or indeed film companies.

Tax efficient vehicle? Can you speak English please?
OK - in simple terms, here is how it works: EIS is a government tax scheme, which gives your investors very attractive tax breaks, so that they start making money long before the film does. Its purpose is to make it attractive for investors to put up investment money for the kind of risky ventures that tend to generate employment, revenues, and create jobs.

So how does it work in practice?
Let's say you want to raise £5m for an independent animated film. We assume you have a great script, great character designs, a budget, a business plan - you've even done a proof-of-concept trailer (If you haven't done these things - you need to do them first). Now you just have to attract investors. First, you set up an SPV (single purpose vehicle). This is the film company that will make the film. Let's call it Awesome Films Ltd. All the rights (script, designs etc) get assigned to Awesome. Now you go to investors - that's wealthy folks with lots of spare cash -  and get them to invest. But first, you make sure your business plan is EIS compliant.

You can pitch your idea at Cartoon Movie in Lyon next March

But why would wealthy people want to invest in your film? Isn't that kind of risky?
Investing in films is very risky, and investors tend to lose money. However, get it right and you can make a fortune. Under EIS, the Government helps to spread the risk by allowing investors to write off the entire amount of their investment against their income tax bill, so that they pay 30% less tax - immediately.

What else?
If your film makes money (let's hope it does!) your investors don't have to pay any capital gains tax on the profits. So, they get the profits tax-free. Also, if they get run over by a bus, the profits are not subject to inheritance tax either - their children will get the profits tax-free too. So, if your film does more than break even, your investors will do very well indeed.

What if the film makes a loss?
God forbid. But, if it does lose money, there is more good news - the taxman helps pay for the losses. Your investors are able to write off the losses against their income tax.

Why does the British government do this?
Because they are desperate to get new businesses up and running, to grow the economy. So they are incentivising business startups, not in the form of grants (which are very hard to get) but in tax breaks through EIS. If you follow the rules, EIS can represent a significant government investment in your business.
A good accountant will help

How do you follow the EIS rules?
Well, you will need some professional advice to help you tick all the boxes. That means you need a good accountant and/or lawyer. But it is well worth it, as this can make the difference between finding finance and not.

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