Video Games Tax Relief (VGTR) is a government scheme that allows UK game developers to apply for tax relief funding from HMRC.
Updated 9 January 2020
The relief can be used to reduce the company’s corporation tax (if the game makes a profit), or to receive a cash tax credit (if the game makes a loss).
The maximum payment you can claim from HMRC is 20% of expenditure incurred on the game’s development. Recent figures from HMRC show that since the VGTR was introduced in 2014, it has paid out £324m to 1,110 games.
How to qualify
The game must qualify as being British via the Video Games Cultural Test. This test is administered by the British Film Institute (BFI). Bear in mind that at least 25% of the game’s production costs must be incurred in the European Economic Area.
To claim VGTR companies also need to:
- Be registered with Companies House
- Be liable to pay UK corporation tax
- Develop the video game for supply and not to promote a product or brand etc.
The company also has to have overall responsibility for the majority of the video game’s development including:
- Designing, producing and testing the game
- Being actively engaged in planning and the decision making during the design, production and testing of the game
- Directly negotiating, contracting and paying for rights, good and services relating to the game. The company does not need to have direct responsibility for every aspect of these activities and third parties can be subcontracted to deliver certain elements of the game. It is not permitted, however, to simply commission the entire game and hold the creative copyright.
What types of games can benefit?
The VGTR isn’t tied to specific platforms and you can apply for it for the development of console games, games for PCs, games for smartphones, tablets, and other mobile devices. Any games produced for advertising, promotional purposes or for the purposes of gambling cannot be granted the Relief.
Qualification and certification via the ‘cultural test’
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. The test looks at the cultural content of the game, its cultural contribution, its cultural hubs, and its cultural practitioners.
A video game needs to be awarded 16 points out of a possible 31 if it is to pass the test.
Other steps in the process
As well as completing the cultural test, the process for claiming VGTR also requires:
- The completion of an application form for each game
- A Statutory Declaration to certify that the truth of the particulars in the application is also required.
- An Accountants report is required if an application for a final certificate relies upon points in Section C and/or Section D of the cultural test. At Shipleys we can prepare this so it complies with Section 1212 of the Companies Act 2006.
How much can you expect if your application is successful
If your company qualifies, it is entitled to an additional deduction in its corporation tax and, where that additional deduction results in a loss, to apply the losses for a payable tax credit.
Help along the way
At Shipleys we have helped companies successfully secure the relief for their games development. We give support across the whole process – or wherever you need an extra pair of hands – for example:
- Assisting with the VGTR application and advising on allowable spend to include in the claim, in alignment with the Relief’s criteria
- Setting up Special Purpose Vehicles (a dedicated company) to support the Relief’s application
- Liaison with the BFI for sign-off of the application
- Liaison with HMRC on our clients’ behalf
- Year-end accounts production and compliance of the SPV
- Company secretarial compliance of the SPV
- Helping with tax return filing eg Corporation Tax, VAT, PAYE etc
Please contact one of our video games specialists to find out how we can help you.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary, if you would like advice or further information, please speak to your usual Shipleys contact.
Copyright © Shipleys LLP 2020