HMRC has issued a clarification note regarding the eligibility of film and television productions stating that in the case of co-productions, each party is responsible for a certain part which is then collated by the majority producer into a finished film or programme. The intellectual property is jointly owned by all the parties involved, while the income derived is divided in the same ratio as their input into the production.

In some instances, one party may receive in excess of 50% of such fees and, therefore, be the majority producer, though in the case of a co-production involving more than two parties this may not be the case.

In the past, it has been accepted that if a majority producer receives royalties or licence fees then under s195 Income Tax Act (ITA) 2007 it is not conducting an excluded activity and thus eligible to be considered as a qualifying company for EIS purposes.

However, HMRC has now changed this, stating that consideration should first be given to the provisions of s183 ITA 2007. This requires that no part of the qualifying trade is carried on by a person other than the company or a qualifying 90% subsidiary.

In the case of a film or television programme there is a single product that is produced and HMRC points out that a film or programme in a co-production has been produced by the activities of more than one party. The consequence is that the trade of a potentially EIS qualifying company is being conducted by another person and so this company will fail the test of s183.

HMRC says these rules will apply whether the production is a qualifying co-production as defined by s1186 and s1216AI Corporation Tax Act 2009 (an official co-production) or an unofficial co-production.