Incentives Estimate or Opinion Letter: Which One Is Right for My Production?

With any production, it’s a good idea to get an incentives estimate to help you lock down your finance plan and be confident that your creative vision can become a reality. However, sometimes you may want to go a step further and get a formal document that you can rely on to obtain funding. This is when an opinion letter may be right for you.

What is an opinion letter?

An opinion letter (sometimes known as a “comfort letter” or “letter of comfort”) is a formal, detailed document prepared by a third party (normally an accountant if claiming the UK incentive) which covers all qualification criteria for a given incentive for both a production and a company. This includes estimated timings for when the incentive is likely to be received and, crucially, a formal opinion on the value of the incentive.

A UK incentive opinion letter will typically opine on:

• Qualification of the production company as the “Film/Television Production Company”;

• Qualification of the film or programme under the Cultural Test;

• Qualification of the film or programme as intended for theatrical release or broadcast;

• In the case of television programmes, qualification as a “Qualifying Television Programme”; 

• The value of the incentive to be received; and 

• The estimated timing of receipt of the incentive. 

Why would I need an opinion letter rather than an incentives estimate?

Generally, opinion letters are required when a financier is lending against the incentive to be applied for by the production. In order to get comfort over the potential value of the incentive, and therefore what value they are willing to lend, a financier will typically require that an opinion letter is provided as part of the financial close of a project.

Financiers want an opinion letter because it gives them far greater security than a simple estimate. The accountant is effectively certifying that all qualification criteria are met and is formally giving their opinion on the minimum value of incentive to be obtained. In the case of an estimate, there is no formal element to the figure provided by the accountant; no other qualification criteria are necessarily reviewed and therefore there is far less security.

Further, for an opinion letter, the financier will be a party to a tri-partite engagement with the accountant and the production company. This gives the financier legal redress to the accountant in the (hopefully very unlikely) event that the production is ineligible for the incentive or the incentive is lower than the opinion provided—subject to provisos in the opinion and the terms and conditions of engagement of course.

Sometimes, even if there is no external loan against the incentive (e.g., where it is funded by a distributor or broadcaster), there will still be a request for an opinion letter to provide additional assurance over the incentive element of the finance plan.

When does an opinion letter typically get issued?

Generally, opinion letters are issued as part of the financial close process for a production. The earlier the need for an opinion letter can be established the better, as this allows both the production and the accountant to work to a desired date and hopefully avoid any last-minute requests.

With respect to timing, one key element is movement within the budget. An opinion letter will always be based on a specific iteration of the budget—ideally, the final locked budget.

If the budget is still undergoing final tweaks, it may not be the right time to do the incentive calculation element of the opinion, as all the changes will need to be appropriately reflected in the final opinion. However, your accountant can still progress with other elements of the opinion, such as qualification as British and qualification as the production company.

What is involved in drafting an opinion letter?

The main thing that most parties are looking for in an opinion letter is the value of the incentive to be obtained. To get to this figure, the accountant will undertake a line-by-line analysis of the total production budget.

While this is the same process as for an incentives estimate, the accountant will typically go a layer deeper in their analysis for an opinion letter, checking key elements of the budget against contracts (e.g., for the producer, executive producer, director and cast fees) to get a greater level of certainty over the veracity of the budget.

In order to opine on the other elements listed above, the accountant will also require copies of, and review, other documents such as your key production contracts, chain of title, rights acquisition agreements, finance plan, distribution contracts and Cultural Test applications.

The request list for an opinion letter is therefore considerably more extensive than for an incentives estimate.

Does it cost more (and take longer) to get an opinion letter than an incentives estimate?

In short – yes.

An incentives estimate, or at least the first draft of one, can normally be turned around in 24-48 hours.

Opinion letters tend to take 5-10 working days to prepare and be ready for distribution to the financier and production company. This timeframe starts from the date the last piece of information is provided to your accountant, so it’s a good idea to have the necessary documents ready to go when you make your request.

The interlinked nature of all the elements being opined on means that while your accountant can get started, final opinions cannot be determined until all elements of the production have been appropriately reviewed.

Given the level of risk involved for an accountant, opinion letters are reviewed in great detail at a very senior level; therefore, this time also needs to be factored into the turnaround.

For the same reasons, an opinion letter is significantly more expensive than an incentives estimate. Ultimately, opinion letters require more work and therefore provide greater security than an incentives estimate, so the fee is commensurately higher.

What happens if there are changes to the budget, finance plan or production after an opinion letter is issued?

An opinion letter is based on the set of facts, documents and representations made at the time it is issued. If there are changes to those after the fact, the impact of those changes on the opinion is outside the accountant’s control and limits any redress to the opinion.

That said, if there was a sudden change post-issuance of an opinion letter, most accountants would happily revisit the opinion and reissue it in light of the changed circumstances. This would however be a separate piece of work and would likely be subject to an additional fee if significant re-work is required.

Summary: Incentives estimates versus opinion letters

The table below sets out the key differences between incentives estimates and opinion letters.

How can EP help with obtaining an opinion letter?

If you’re still unsure whether an opinion letter or incentives estimate is right for you, please reach out to me, Lloyd Gunton, Director of Creative Sector Tax Reliefs at FLB Accountants (an Entertainment Partners company). We can provide opinion letters and estimates for the UK incentive regime, including the new Independent Film Tax Credit. We work with the major incentive financiers in both the UK and the US and would be happy to assist you with all your incentive needs.

As a UK-based accounting firm with expertise in media and entertainment accounting, tax and tax incentives, finance, and accounting, FLB can also provide structuring and qualification advice for productions that are looking to come to the UK for elements of production (remember: not all of a production needs to take place in the UK to qualify for UK tax relief). This includes assisting you with the Cultural Test and the actual process of accessing and monetising the tax credit in the UK.