In Cry Me A River Limited v HMRC [2022] TC08507, the First Tier Tribunal (FTT) held that the production of a single film and engaging sub-contractors did not stop the appellant from meeting the SEIS risk to capital criteria. 

The appellant was a film production company created as a special purpose vehicle for the production of one film, Cry Me A River. A second film was planned for release in 2021.

  • In January 2015, they requested and obtained Advance Assurance that it was a qualifying company for the Seed Enterprise Investment Scheme (SEIS) and that allotted shares would be qualifying shares.
  • In 2017 they signed an agreement with a Norwegian company, Storyline NOR AS (SLine) to co-produce the film. 
  • The intellectual property belonged to Secret Channel Films (SCF) of which Mr Dingli, the appellant's director was an employee. He had been sub-contracted out to the appellant as had everyone else involved with the film.
  • In 2017 and 2018 B shares were issued to three individuals and the authority to issue SEIS certificates was applied for. HMRC denied the authority for two of the three individuals on the basis that the qualifying criteria were not met.
  • In 2018, all of the necessary rights to produce, distribute and exploit the film were assigned to the appellant and SLine. Mr Dingli confirmed in oral evidence to the FTT that this was the intention at the time of the share issues in 2017 and earlier in 2018.
  • HMRC concluded that the two issues of shares in June 2018 did not meet the Risk to Capital condition introduced in March 2018 and so denied qualifying status.
  • HMRC further contended that:
    • Without the involvement of SLine, the appellant did not have the capacity to undertake the trade as described and so failed the 'Own Qualifying Activity' condition.
    • The assignment of the film rights from SCF to the appellant was part of arrangements to access SEIS benefits when it had originally been intended for SCF to produce the film so they were subject to the Disqualifying Arrangements Requirement.

The tribunal referred to the decision in Inferno Films Limited v HMRC [2022] TC08472 and acknowledged the unique way in which film production worked.

  • It was common for films to be produced one at a time. This did not preclude the intention to grow and develop the business. The success of one film often led to investment and larger budgets for the next.
  • The use of sub-contractors is standard practice.
  • Co-production is also commonplace and the appellant and SLine were clearly co-producers. The appellant's role was not limited and it was carrying on the trade specified.
  • The development of intellectual property rights, (as carried on by SCF) is a qualifying business activity as per the legislation and its separation from film production does not fall within the Disqualifying Arrangement provision.

The FTT concluded that the issue of shares met the qualifying conditions and the appeal was allowed.

Useful guides on this topic

EIS or SEIS: Advance assurance from HMRC
This is a freeview guide. Companies can apply to HMRC in advance of offering shares under either scheme to check that they meet the stringent qualifying criteria. There is no requirement to apply for advance assurance. It is a non-statutory discretionary service.

SEIS: Seed Enterprise Investment Scheme
When can SEIS relief be claimed? What are the conditions for SEIS relief? What are the benefits of SEIS relief?

Risk to capital: EIS, SEIS and VCTs
'At a glance' guide to the risk-to-capital condition for the Enterprise Investment Scheme (EIS).

Start-up film company met EIS risk to capital criteria
In Inferno Films Limited v HMRC [2022] TC08472, the First Tier Tribunal (FTT) upheld the appeal of a Welsh film company. It found that there were objectives to grow the business and as such the risk to capital criteria was met, allowing Enterprise Investment Scheme (EIS) status to be claimed.

External link

Cry Me A River Limited v HMRC [2022] TC08507


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