Video games tax relief guide (VGTR)
Current Issues | Creative industries | 14th September 2017
The video games tax credit regime was introduced on 1 April 2014. It encourages independent companies to develop commercial video games for the European and International markets that are certified as culturally British. The maximum benefit is a payment from HMRC of 20% of expenditure incurred on the game
At least 25% of the production costs must be incurred in the EEA and the relief works by doubling the tax deduction for certain ‘enhanceable expenditure’ - calculated as the lesser of the EEA qualifying expenditure and 80% of the total qualifying expenditure. If a tax loss is incurred this can be exchanged for a payable tax credit (i.e. tax refund) of 25% of the enhanceable expenditure concerned.
Companies are able to claim VGTR if:
- they are registered with Companies House, and
- within the scope of UK corporation tax, and
- the company has overall responsibility for and direct active involvement in the production and development of a video game:
- designing, producing and testing
- actively engaged in planning and decision making during the design, production and testing
- directly negotiating, contracting and paying for rights good and services relating to the game (but the company does not need to have direct responsibility for every aspect of these activities; third parties can be subcontracted to deliver certain elements of the game. However, it is not permitted to simply commission the entire game and hold the creative copyright).
- the video game is British
- the video game is intended for supply- so not to promote a product or brand etc.
- at least 25% of the core expenditure is incurred on goods or services that are provided from within the European Economic Area (EEA). An understanding of what qualifies as core expenditure is key to making a successful maximum claim.
Qualification and certification that a game passes the ‘cultural test’ as British is administered by the British Film Institute on behalf of the Department for Culture, Media and Sport.
If the company qualifies, it is entitled to an additional deduction in computing it’s taxable profits and, where that additional deduction results in a loss, to surrender losses for a payable tax credit. The relief is claimed through the corporation tax return.
Both the additional deduction and the payable credit are calculated on the basis of EEA core expenditure up to a maximum of 80% of the total core expenditure by the video games company.
Our VGTR specialist will be pleased to discuss with you how to structure your expenditure to maximise your tax credit and to help you make your claim to HM Revenue & Customs.
Please speak to your usual Shipleys contact or one of our experts to determine what you need to do next. Specific advice should be obtained before taking action, or refraining from taking action, on the basis of this information.