Harbottle & Lewis insights: Government Support for the Video Games Industry

This is a guest article by Harbottle & Lewis 

 

The Covid-19 pandemic has upended life in the UK as we know it. Coupled with the public health impact of the virus are profound economic consequences, with many formerly thriving businesses now facing an uphill struggle to survive. In recent weeks, the UK Government has announced a slew of measures to help support the British economy, including a number of new potential sources of finance for businesses. Whilst none of these is directly targeted at the video games industry, certain of them may be of help to studios, publishers and other games businesses. In this article we take a brief look at the new sources of finance that  may be more applicable to video games businesses.

Bounce Back Loan Scheme (BBLS)

This is likely to be the first port of call for many small and medium enterprises (SMEs), because of its simplicity and speed of access – the aim is for businesses to receive funds within days of completing a short online application. Under the BBLS, businesses will be able to borrow between £2,000 and £50,000 for up to six years at a flat interest rate of 2.5% per annum, with no interest to pay for the first 12 months. Loans under the BBLS will be provided by a network of accredited lenders and will be 100% government-backed. Announced on 27 April 2020, the BBLS has been put in place in response to criticism that businesses were struggling to obtain loans under the existing Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS) due to banks’ onerous lending criteria.

The BBLS launched on Monday 4 May 2020.

For more information on the various loan schemes on offer, please take a look at our Business Law Update on access to debt finance. In addition, the British Business Bank has produced a list of FAQs for small businesses in relation to the BBLS, which can be found here.

Innovate UK R&D Grants & Loans

The Government announced on 20 April 2020 that Innovate UK, the national innovation agency, will provide £750 million in grants and loans for SMEs focused on research and development (R&D). This includes the acceleration of £200 million in funding for existing customers (should they decide to opt in) with the remaining £550 million being made available to both existing recipients and also to 1,200 businesses not currently in receipt of the agency’s largesse, who could receive up to £175,000 of support each.

Innovate UK plans to begin making payments from mid-May 2020, although there is currently no further detail on who will be eligible for the support. We are monitoring the situation, and will provide an update as soon as we can.

The Future Fund

Together with the R&D grants and loans outlined above, the Government announced the formation of the ‘Future Fund’ in partnership with the British Business Bank. This is a co-investment fund of £500 million (£250 million of which will be contributed by the Government with the remainder coming from the private sector) that will make available convertible loans of between £125,000 and £5 million to ‘qualifying companies’. To qualify, companies must be unlisted, registered in the UK and must have raised at least £250,000 in equity investment in the last five years. The funds provided by the Government must be matched by private investors and it is intended to be operational from May 2020.

Whilst helpful for later stage businesses with existing equity finance in place, the criteria set for Future Fund loans are likely to rule out smaller, very early stage businesses. In particular, it appears that the matched funding provided by private investors would need to be in the form of convertible loans, to align with the Government. This means that investors would not be able to get SEIS and EIS treatment, which would discourage many angel investors from taking part.

What’s next?

The Government has been under a great deal of pressure to shore up businesses of all sizes and in all sectors and, in so doing, has rightly focused on putting support in place as quickly as possible. However, some of the measures announced are, so far, light on detail – in particular the R&D support from Innovate UK. In addition, with any emergency measure introduced at this pace and on this scale, there will be unintended consequences and intricacies to untangle in due course.

One of these may be an unfortunate conflict between the government-backed loan schemes and grants, some of which have been notified by the Government as state aid to the EU under temporary rules in place, and SME R&D tax relief, which is also notified state aid. Businesses that avail themselves of government funding may find that their ability to claim R&D tax relief for qualifying expenditure is affected. This could also be an issue for video games tax relief (VGTR), although in most cases we do not expect the Bounce Back Loan Scheme to cause problems for VGTR. However, we would suggest consulting carefully with your advisers before applying for any government support in order to fully understand the potential impact. As with all of these measures, the situation is constantly evolving and we will update you when we know more.

Only time will tell if more targeted support for the video games industry will be forthcoming from the Government. One possible measure touted by some commentators is to fast-track the VGTR claim process to help companies maintain their liquidity through the crisis. Nothing has so far been hinted at in this vein, but we will keep you posted.

In the meantime, please refer to our Covid-19 Hub for further insights on the challenges thrown up by the pandemic, including employment issues and ‘force majeure’ provisions, and how you can best tackle them.

We are very happy to discuss and help you navigate the support on offer, and the potential pitfalls. Please contact Alan Moss for more information.

 

For further information on the support available for video games businesses, see our dedicated COVID-19 signposting page.