Video Games Tax Relief

What is Video Games Tax Relief (VGTR)?

The VGTR is a valuable incentive that allows video games studios to claim a cash repayment or tax relief from the Government after they have spent money on developing a video game.
 

How can the VGTR help your studio?

The VGTR can provide valuable finance for your studio. Potentially, it can also help you to unlock other finance – see Video Games Tax Relief Loans.
 

What is the value of the VGTR?

The value of the VGTR for a video game wholly developed in the UK or the European Economic Area (EEA) is 20% of qualifying spend. Qualifying spend means, in short, spend on designing, producing and testing the game (including DLC and other post-release spend), excluding debugging and maintenance costs and the costs of designing the initial concept. As a simple example, if a game has qualifying spend of £1m which is entirely spent in the EEA, the value of the relief will be £200,000, being 20% of £1m.

If the video game is partly developed outside the UK/EEA, slightly different rules apply. These are too detailed for this summary, but feel free to contact us if you need further details.
 

Maximising the value of the VGTR

It is important and worthwhile to take advice from an expert on how to maximise the value of the VGTR for your game. With the help of experienced advisers who understand the fine details of the VGTR rules and have experience of dealing with HMRC (whose rules are not always written down!), you may be able to obtain a meaningful increase in the value of your VGTR claim.
 

When can your studio claim the VGTR?

You do not have to wait until the game is completed before making a claim for VGTR; you can make interim claims for VGTR during development of the game, which can assist with cashflow.
 

How does your studio/game qualify for VGTR?

The following main criteria need to be met:

  • You must use a company to claim the VGTR (individuals, partnerships and Limited Liability Partnerships (LLPs) cannot make claims). The company is called a ‘video games development company’ or ‘VGDC’.
  • The VGDC must be subject to UK corporation tax.
  • The VGDC must be directly involved in the production of the video game. It must:
    • be responsible for the design, production and testing of the game;
    • be actively involved in the decision making during this process; and
    • directly pay and contract for the goods and services relating to the game.
  • There can only be one VGDC per game. There are various factors to consider in deciding whether to use an existing trading entity to claim the relief for all of your studio’s games or to set up a special purpose vehicle for each separate game. In many cases it is preferable to have a special purpose vehicle.
  • The VGTR can be claimed for all forms of video games, including VR, mobile and tablet games and other formats which are yet to be developed.
  • The video game must pass a Cultural Test. The test is points based, and a video game only requires 16 out of a possible 31 points in order to pass. This is a relatively low threshold and means that many games can pass. The test is administered by the British Film Institute (BFI), who are very helpful in providing guidance and assistance. Further details about the Cultural Test are set out below.
  • The video game must be intended for supply to the general public.
  • The video game should not fall foul of any of the agreed exclusions, which include games made with a primary purpose of advertising or gambling or games that contain any pornographic or other extreme material.
     

Is there a limit on qualifying spend?

No, there is no limit on how much qualifying spend can be incurred. This means that the VGTR is available however high the qualifying spend.
 

Is there a minimum spend threshold?

No, there is no minimum spend threshold. This means that games companies developing low budget games can qualify for the VGTR.
 

Can the VGDC sub-contract to other companies?

Yes, the VGDC can sub-contract work, subject to a cap of £1 million of sub-contracting costs.

The subcontracting limit will not apply to every payment made by the VGDC to a third party. For example it is unlikely to apply to a licence payment made to another company for the use of software.

If your game may have sub-contracting costs of over £1 million, you should take advice from an accountant who is experienced in relation to VGTR.
 

Is there a minimum amount of qualifying spend that needs to be EEA spend in order for a game to qualify for the relief?

Yes, at least 25% of the qualifying spend on the game must be spend incurred within the EEA.
 

How does the relief interact with the R&D tax relief?

The VGTR cannot be claimed in respect of any expenditure that can qualify (or has already qualified) for R&D relief.

However, with the right advice and structuring from experts, there can be ways for studios to take advantage of both VGTR and R&D tax relief.
 

Until when will VGTR be available?

The European Commission confirmed in November 2017 that VGTR will be available until at least 31 March 2023.
 

Where can I find out more?

Feel free to contact Alan Moss or Mark Phillips for any further details about the VGTR.

Also, HMRC has issued helpful guidance on the VGTR, which is found here.

The BFI’s website page and guidance notes on the Cultural Test are found here and here.

 

The Cultural Test

The test is broken down into four sections:

Cultural content: 16 points available
This measures the British or European content of the video game. Points are awarded for:

  • the setting of the video game in the UK or the EEA (or an undetermined location, such as a fictional world);
  • the lead characters being British or EEA citizens or residents (or characters from an undetermined location);
  • the video game being based on a British or European subject matter; and
  • the dialogue being mainly in the English language (or one of the UK’s six indigenous minority languages).

Cultural contribution: 4 points available
This section measures the British cultural impact of the video game. Points are awarded for those elements of the game which demonstrate British creativity, British heritage or cultural diversity.

Cultural hubs: 3 points available
This section measures the use of the UK’s video game development facilities. Points are awarded for the use of UK facilities for concept development, storyboarding, programming, design, music recording, audio production or voice recording.

Personnel: 8 points available
This section measures the use of personnel with creative input into the video game. Points will be awarded for the use of UK or EEA citizens or residents in key video game development roles including the project leaders, scriptwriters, composers, artists, programmers, and designers.

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