It is estimated that less than 10% of UK game developers are claiming Video Games Tax Relief.
According to data released by HMRC back in July 2017, £73m was paid out relating to 280 claims in the 2016-17 tax year. Latest information from gamesmap.uk shows that we have around 1,700 video game companies in the UK. If each company produced on average two games per year, then this would mean that only 8% of UK developers are claiming Video Games Tax Relief.
We asked Barrie Dowsett, CEO of Myriad Associates who specialise in VGTR, what were the 3 most common reasons why game developers aren’t claiming:
- Many indie games are developed on a shoe string. Only the development costs that have been expensed to the P&L account can be claimed. Unfortunately, many start-up’s and micro game developers pay themselves at best a small salary that isn’t representative of the time and effort that is put into developing a game. Also, the fee for producing an Accountants’ Report and Financial Statements for each video game trade makes the process very cost prohibitive.
- Games developers don’t believe their game will pass the BFI cultural test. To be certified as a British video game the BFI must be satisfied that the video game passes the cultural test. A video game will pass the cultural test if it is awarded 16 points out of a possible 31. If your game is developed and managed by UK personnel then you will already be entitled to 11 points, leaving just 5 points in order satisfy the BFI cultural test.
- The HMRC tax reporting requirements are too complicated and cumbersome. It is true, every game needs to be reported as a separate trade and special rules apply to Video Games Tax Relief losses. Many accounting practices don’t have tax software that can cope with multiple trades and VGTR rules.
Barrie went on to explain that ‘The VGTR scheme is a great opportunity for UK game developers. It is possible to obtain 20% back on production game costs. The incentive from HMRC is generous and I would urge every UK video game developer to take full advantage of this opportunity’.
How to maximise Video Games Tax Relief?
Having a good understanding of the BFI Cultural Test guidance and HMRC Video Games Tax Relief manuals will ensure that you claim your full entitlement. It allows you to make more informed decision on what games to produce and what country the production costs originate from.
Barrie recommends that you consider setting up Special Purpose Vehicles (SPVs) for each game (subject to budgeted costs being reasonably substantial). The SPV will allow you to accurately allocate costs and revenue which will make the HMRC reporting aspects simpler. It will also allow you to maximise the Video Game Tax Relief as for loss making games (after the additional relief) you can surrender the loss for a payable tax credit at a rate of 25%.
Myriad Associates is a leading Video Games Tax Relief consultancy that employs BFI application specialists, qualified cost accountants and VGTR tax experts.