Red Rug Productions is raising finance for film production with the opportunity for investors to take advantage of the tax benefits offered by the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (‘EIS’). These are designed by the UK Government (HMRC) to encourage investment in certain types of projects, by offering generous tax incentives and reliefs.

Why Start With SEIS?

SEIS can be a significant help for film companies who are looking to attract early investment. Very often, once a company has raised the SEIS limit of £150,000 such funding is combined with further finance provided by EIS investors, subject to a small time gap (to be reflected in the paperwork) between acceptance of the SEIS and EIS monies. The aim of the SEIS and EIS schemes is to facilitate the long term development of businesses so in order to qualify a film production company will need to satisfy HMRC that it aims to create an established brand with ongoing revenue streams, and therefore Red Rug Productions is creating an SEIS for seed development of our entire production slate. It is not necessary to shoot all or part of a film production in the UK to be eligible for SEIS. Although film companies which have filming locations in several countries should bear in mind that SEIS/EIS applies to UK companies or companies with a UK establishment.

The benefits of SEIS for investors

• Investors can receive initial income tax relief of 50% on investments up to £100,000 per tax year in qualifying shares issued on or after 6 April 2012
• A CGT exemption will offered in respect of gains realised on the disposal of assets in 2012-13, that are reinvested through SEIS in the same year
• The individual investor can be a director of the company, but not an employee
• An individual’s stake in the company can be no more than 30%
• SEIS tax relief applies only to recently incorporated companies
• The company must have 25 or less employees and gross assets of up to £200,000
• For 2012-2013 only, a CGT exemption will be offered in respect of gains realised on the disposal of assets that are invested through SEIS in the same year.

The benefits of EIS for investors

It is anticipated that UK tax paying investors will be eligible for Enterprise Investment Scheme tax benefits based on their investment in the Company. EIS Investments offer the following potential benefits to investors:

• Income Tax relief at 30% in the current year or in the prior tax year, on the amount invested in shares against income of up to £1,000,000;
• Capital Gains Tax exemption on disposal of shares if held for at least three years;
• Capital Gains Tax deferral relief without limit on chargeable gains made up to 3 years before or 1 year after the investment;
• Inheritance Tax free if the shares have been held at least 2 years in most case;
• Loss Relief; should the investment fail to recover the amount invested or where an investor sells their shares at a loss, the loss, after deducting EIS Income Tax relief (see above), may be set against an investor’s chargeable gains or taxable income in that year or the previous year. The Company will maintain its EIS eligibility throughout the necessary qualifying period.

UK Film Tax Relief

Since 2007 the UK Film Tax Relief has encouraged productions into the country – with blockbusters including The Bourne Ultimatum, Gravity, The Dark Knight Rises, The Martian, Fast & Furious 6 and Star Wars: The Force Awakens all making use of the UK's world-class industry.

• For all British qualifying films of any budget level, the film production company can now claim a payable cash rebate of up to 25% of UK qualifying expenditure.
• The Tax Relief is capped at 80% of core expenditure i.e. even if you spend 100% qualifying expenditure in the UK, tax relief is payable on up to 80%.

US INVESTORS SECTION 168 & 199 TAX RELIEF

1. Section 168 of the tax code as amended now provides economic incentives for Film, Television and Theater. Investors can now have 100% deduction in the year each it is placed in service. This applies to projects put into service beginning September 27, 2017, and continues through 2022. It also may not be subject to the alternate minimum tax (AMT). You should check with your accountant regarding this. “Placed in service” means the year in which a Film is first shown, a Television show is first aired, or a theatrical project opens. The incentive provides 100% loss and does not matter how much the production budget of each is or whether the investors are active or passive. All investors would get the same 100% deprecation (loss). You are limited in amount you can write off on W-2 wages, dividends and capital gains. If you file jointly the maximum is $500,000.00. If filled individually at $250,000. You can carry other losses forward for 21 years. If you have business income from ownerships in business or business of sale or 1099 income, you can write off the amount of any or all business income up to the amount invested. Any remaining loss can be carried forward for 21 years.

2. Section 199 provided a nine percent (9%) deduction on all taxable income returned to investors. For example, if one dollar is returned and taxable to any investor as the investor pays tax on 91 cents. Under the Act Section 199 is amended under Section 199A and now provides a twenty percent (20%) deduction on taxable income returned to investors. Thus, if one dollar of taxable income is refunded to any investor, the investor pays tax on 80 cents. However, this deduction is subject to limits and rules and you should check with your tax advisors and consultants regarding the application of 199A. Additional good news for independent filmmakers is that the benefitsof the Act can be combined with any state film or television incentive programs. Currently, over40 states have incentive programs available to film and/or television production projects. Producers, their attorneys and their tax advisers should evaluate projects to determine which state has the best incentives for them to add to those contained in the Act.