During the development period the Producer’s role is primarily to raise the necessary Production finance. There are a number of production finance sources as follows:-
The broadcaster commissions a production and pays a licence fee for a set number of transmissions (TXs) in a defined territory.
The UK currently has an Enterprise Investment Scheme (EIS) which, subject to strict rules, enables investors to obtain tax relief for the cost of the shares and which entitles them to sell the shares after a set period without incurring capital gains tax on any profit. The link to the HMRC website which gives full details of this scheme is:
UK Film/TV tax relief
Tax relief is available in the UK for feature film production, high-end TV drama, children’s TV and animation. Best practice is to seek advice from a film & TV specialist accountancy firm. The UK Creative Industries Tax Relief is being phased out and a new Audio Visual Expenditure Credit is taking its place. The links to the HMRC website concerning two options are:
Loan finance for film and TV production is not generally available with two exceptions:-
- Tri-partite agreement finance
The Tri-Partite agreement is a standard three-way contract negotiated by PACT. The three parties to the Contract are generally the Production Company, the broadcaster and a finance Company (usually a bank) and under the terms of the agreement the bank agrees to lend the Production Company funds on the understanding that, upon delivery of the programme, the broadcaster will pay the agreed licence fee to the production. A link to the PACT website is:
2. Tax relief finance
There are a small number of companies and banks in the UK who are prepared to advance loans to production companies to cashflow the UK tax relief. Each company involved in this specialist form of finance has its own specific requirements concerning the project set up.
Distribution/pre-sales advances and pre-sales advances
A distribution/pre-sales advance is an agreement with a distributor who gives a minimum guarantee advance to a production company in return for securing the distribution rights for the production. If programme sales exceed a pre-set level, further distribution royalties may be paid but whatever the sales the distributor is contractually bound to pay the minimum guarantee.
Overseas tax relief
Several countries in the world offer tax relief to encourage Producers to make programmes in their country. Such arrangements are subject to change. It should be remembered that each country has different rules and eligibility criteria, and some countries have a maximum amount that they will pay out in a financial year, so there are risks that apply to this funding.
This is an embedded marketing technique used by companies and brands who will pay for or provide expensive products for free, so that they are featured in the Production. Many broadcasters have strict rules about Product Placement and these must be taken into account before relying on this as a source of finance.
Crowd funding is a way of raising small amounts of finance from large numbers of people. The investors are often offered incentives such as their name in the credits, an opportunity to be an extra or an invitation to the premier. Crowd-funding income is not zero-rated for vat and accountants should consult the HMRC Website for up to date information on this subject.
- Equity Funding – is available from organisations such as BFI and Channel 4.
- Investment from high net worth individuals.