By Emma Lewis, Myriad Associates
In 2020-21, 350 claims were made for Video Games Tax Relief in the UK. This led to an impressive £180 million being paid out, representing the development of 640 video games. For smaller games companies in particular, this valuable award can make a huge financial difference.
What is Video Games Tax Relief?
One of the UK’s most generous Creative Industrytax reliefs, Video Games Tax Relief (VGTR) allows eligible games companies to claim acash tax credit on qualifying expenditure. In other words, money that has been spent out on game development and testing work is likely to be eligible for this significant tax reward.
Sounds great – and it is. But unfortunately, despite VGTR having been around for some years now, far too many games and software companies are missing out. The reasons for this vary; some would-be claimants are concerned about the complexities of applying. Others simply don’t have the time or don’t believe their project is eligible. Many just haven’t heard of the scheme at all. But with potentially tens of thousands of pounds at stake, VGTR is an opportunity not to be missed.
How much is Video Games Tax Relief worth?
VGTR works by reducing the amount of Corporation Tax a games company must pay. It’s done by either increasing a loss or reducing its profits.
Profitable companies can claim up to 20% of production costs back from HMRC. And let’s face it, all companies in the UK could really do with some tax deductions right now.
Video games innovation must have been carried out either in the UK or the European Economic Area (EEA) in order to qualify for VGTR. How much a company will get depends on what eligible costs are included in the claim. Such costs are laid out in the Government’s VGTR manual.
Some or all of any losses can be surrendered for a payable tax credit at a25% rate.
The additional deduction will be the lower of either80% of total core expenditureor eligible expenditure made within the European Economic Area (whichever is lower).
Who can claim Video Games Tax Relief?
Only a company that qualifies as the Video Games Development Company (VGDC) in relation to a specific gamecan claim VGTR. Additionally, only one VGDC can apply per game.
Companies must also be incorporated within the UK (or at least be subject to UK Corporation Tax if based abroad). They should also have:
- Actively planned, designed, developed and produced the video game, and conducted the decision-making around it
- Directly negotiated and paid for any rights (as well as goods and services) that relate to the video game.
What video games are eligible for VGTR?
For a game to be eligible for VGTR, it must have passed the British Film Institute’s “Cultural Test” (we’ll look at this in more detail in a minute). It must also be intended for supply to the general public.
Furthermore, a minimum of 25% of the total “core” expenditure must have happened in the EEA.
Not all games are permissible for the relief though. Any that have been created specifically for promotional, advertising or gambling purposes are excluded.
Bear in mind that ‘Core expenditure’ only relates to money paid out on designing, producing, and testing the video game. Any costs that don’t relate to the original design (such as debugging or maintenance after release) cannot be included in a VGTR claim.
And the “Cultural Test”?
It’s important to understand the full process of claiming VGTR before you begin.
In order tostart your claim, your new video game must be certified as “British”. This is done by meeting certain criteria set out by the British Film Institute (BFI).
It’s based on a points system, with games required to obtain a certain number of points in order to be awarded a certificate. The good news however is that currently a game only needs16 out of 31 points to pass and achieving them is relatively straight-forward.
More information and how to apply can be found on the BFI website.
What if any work is subcontracted out?
The VGDC is permitted to subcontract work where required. However, a maximum cap of £1 million per game applies.
It’s worth knowing that this £1 million cap doesn’t apply to every single payment the company makes to a third party. Some don’t count. A licence payment made to another company for using their software is a good example.
Quick additional facts:
- If a Video Games Tax Relief claim is successful, the award will be paid in cash as a tax credit from HM Revenue & Custom (HMRC). It will be administered directly to the VGDC only.
- VGTR is regularly reviewed, however it’s expected to be offered for the foreseeable future.
- It is possible to make an interim tax credit claim to improve cash flow, or to help with matching foreign currency.
- There’s no maximum annual claim amount for one single game.
Interested in knowing more about Video Games Tax Relief?
A wealth of information about VGTR can be found on the Gov.uk website. Don’t forget, it may also be worth claiming VGTR alongside R&D Tax Credits.
