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14/12/2009

Positive Changes To EIS Burdened By Red Tape

Despite the announcement in the Pre-Budget Report (PBR) of the long-expected clamp-down on the use of the Enterprise Investment Scheme (EIS), media investors will continue to face a complex burden of red tape, says financial and business advisor Grant Thornton UK LLP.
The EIS, a significant funding mechanism for many media businesses, was designed to help smaller higher-risk trading companies raise finance by offering a range of tax reliefs to investors who subscribe for new shares in those companies. However, having previously been subject to perceived abuse by some financiers, the Treasury laid out its intention in the PBR to consult on how to ensure the EIS scheme is targeted appropriately at small businesses. The Treasury will now disqualify a company from the scheme where 90% of the business is not conducted directly by the company within the first three year period.
Despite this action, the PBR delivered neither changes to the complex provisions to allow greater flexibility for investors, nor an extension of the Film Tax relief to other media industries.
Liz Brion, Media and Tax Partner at Grant Thornton commented: "The changes to the EIS challenge the well known method of parallel investments, where investors set up more than one partnership to invest into a media company for tax purposes, and this looks like it is coming to an end. In spite of this, what is missing are changes to truly promote the spirit of the legislation."
Financiers of media companies face a complex set of rules in investing under the EIS. It was hoped that this process would have been made easier, together with an increase in the amount of tax relief to encourage investment.
Liz Brion concluded: "Other media industries such as animation and gaming, had hoped to receive a similar tax relief to that given to film. It is disappointing that this was not announced this year. The UK needs to compete internationally in areas such as animation and a lack of Government support means that we will see fewer home-grown businesses and productions develop on our soil."
(BMcN/BMcc)
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