How To Use EIS to Finance Your Animated Film

As we get ready for our evening class in Producing Animation, starting in September, it's important to conside some of the different ways to finance animated film projects.

Anyone who has tried to raise money for a film project (or any project) knows how hard it can be. Yes, you may have a great idea, but finding the money needed to bring it to life is no easy task.

EIS (Enterprise Investment Scheme) is one of the most promising means of securing equity investment. So, what is EIS and how does it work?

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, including film companies.

EIS is a government tax scheme, which gives 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.

How does EIS 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 Films Ltd. Now you go to investors - wealthy folks with cash to spare - and invite them to invest. But first, you make sure your business plan is EIS compliant.

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

But why would investors want to invest in a film? Isn't that rather risky?

Investing in films is very risky, and investors often lose money. However, get it right and you can do very well.

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 can do very well indeed.

What if the film makes a loss?

A good accountant will help

If the film loses money, the taxman helps pay for the losses. Your investors are able to write off the losses against their income tax.

Why does the Government do this?

Because they are very keen get new businesses up and running, to grow the economy.  So they are incentivising business startups in the form of tax breaks such as EIS. If you follow the rules, EIS can represent a significant government investment in your business.

How do you follow the EIS rules?

You will undoubtedly need professional advice to help you tick all the boxes. That means you need a good accountant and/or lawyer. But it is likely to be worth it, as this can make the difference between finding finance and not.

To find out more detail about how EIS works, go to HM Government's official page on the subject.

---- Alex

The Escape Studios Animation Blog offers a personal view on the art of animation and visual effects. To apply for our BA/MArt (September 2017), follow this link. To apply for one of our intensive 3 month animation short courses, click here.