On 12 March 2014 HMRC published a note on Enterprise Investment Scheme (EIS) and Co-productions in Film and Television, to clarify the interaction of the above and, in particular, the eligibility of co-productions to access EIS. HMRC notes that films and programmes are often produced by means of co-production, with multiple producers being involved in a project. Each producer is usually responsible for creation of a certain part of the film or programme, with a majority producer usually responsible for collating those parts into the finished product. The intellectual property created is normally jointly owned by the parties and income shared between them, often in a ratio equivalent to their contribution.
In the past, HMRC has on occasion accepted that if a majority producer (ie creating in excess of 50% of the production) receives royalties or licence fees then under section 195 Income Tax 2007 (ITA) it is not conducting an excluded activity and thus eligible to be considered as a qualifying company for EIS purposes.
However, HMRC notes that qualification for the EIS is dependent on section 183 ITA. This requires that no part of the qualifying trade be carried on by a person other than the company or a “qualifying 90% subsidiary”. In a co-production, because there is a single product produced by the activities of multiple parties, section 183 is not satisfied and so the EIS does not apply.
To read the note click here.