Tax reliefs can provide a valuable source of finance for your studio or games-related business.

Video Games Tax Relief

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. It is one of a number of Creative Sector Tax Reliefs in the UK.

Note: This relief is still currently available however from 1st January 2024, the new Video Games Expenditure Credit comes into effect. Find out more about VGEC here.

How can VGTR help your studio?

VGTR can provide valuable finance for your studio. Potentially, it can also help you to unlock other finance – there are lenders out there that will provide debt to your business using future VGTR receipts as security.

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:

The VGDC must be directly involved in the production of the video game. It must:

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.

However, the limit applies where a part of the design, production or testing of the game is outsourced to a third party or where a third party produces content that is discernible in the released version of the game. HMRC provide examples of content that would be considered discernible in a game, including:

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 and other state aids?

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 may be ways for studios to take advantage of both VGTR and R&D tax relief.

Businesses that have taken advantage of any Covid-19 funding, e.g. the Coronavirus Business Interruption Loan Scheme, should note that many of these support schemes constitute state aid and so may have an impact on the availability of other state aid such as VGTR and R&D tax relief.

Where can I find out more?

Feel free to contact Mark Phillips or Kostya Lobov for any further details about VGTR.

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

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

Potential changes

On 17th November 2022, HM Treasury published a consultation on changes affecting the five tax reliefs schemes for film, HETV, video games, animation and children's TV. The proposed changes include merging reliefs, removing the eligibility of European expenditure from VGTR and replacing this with a requirement for expenditure to be ‘used or consumed’ in the UK, subcontracting only within the UK should be permitted

We will be monitoring developments.

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:

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.

Video Games Tax Relief Loans

This is a loan provided by a bank or another lender secured by the proceeds of the Video Games Tax Relief (VGTR). In other words, the bank or lender lends the video game development company money in the knowledge that its loan should be repaid from the proceeds of the VGTR.

How can a VGTR loan help your studio?

A potential timing issue for your studio is that, under the VGTR rules, you will need to incur expenditure on your game before you can claim VGTR, which means that the VGTR proceeds could arrive too late to be used towards that particular game expenditure. One solution to this issue is to obtain a VGTR loan. This allows your studio to access the value of the VGTR earlier than if you were to wait for payment by HMRC, so that it can help with your cashflow and should mean that you can use the proceeds of the loan towards the costs of your game. In addition, it may help you to unlock other finance, as third party investors may be incentivised to invest in your game if they can see that you have already raised around 20% of your game’s finance from a bank or other financier.

What are the fees involved with a VGTR loan?

The bank or lender will charge interest and/or a fee for providing the loan. However, as the risk to the bank or lender is relatively low, the interest or fee should not be too high.

Typically there are also legal and accountancy fees involved with a VGTR loan, so it is important to assess the level of the total fees and make sure that the burden of incurring them is outweighed by the benefits of the loan.

How quickly can you put a VGTR loan in place?

Lenders tend to move quickly and typically a loan arrangement can be put in place (and the loan paid to you) within 1-3 weeks of the start of the process.

What information will you need to provide to the VGTR lender?

The requirements of lenders vary, but typically you will need at the very least:

Is there anything else to consider?

Certain VGTR lenders may also be willing to provide other finance (in addition to a VGTR loan), such as a loan against a grant awarded by the UK Games Fund.

Where can I find out more?

Feel free to contact Mark Phillips, Edward Lane or Kostya Lobov for further information about VGTR loans.

*A small or medium sized enterprise (SME) is a company with less than 500 employees with either: an annual turnover under €100 million or a balance sheet under €86 million. A company is not an SME if it’s part of a larger enterprise that, when taken as a whole, would fail these tests.  Relief under the Large Company Scheme is broadly based on the SME scheme, with a number of modifications. In particular, the cap on R&D relief for SMEs of €7.5 million   does not apply to the Large Company Scheme on the basis that the relief is not regarded as state aid.

What is Research and Development tax relief?

The R&D tax relief aims to incentivise innovation and increase spending on R&D in industries such as the games industry through relief from corporation tax.  It either allows qualifying expenditure to be deducted from taxable income or, in the case of loss making companies, a cash rebate to be claimed from HMRC. 

For R&D tax relief to be available, the company must be undertaking development activities that seek to achieve an advancement in technology.

You can only claim R&D tax relief if you’re a SME with:

How can Research and Development tax relief help your studio?

A profitable studio can deduct up to 230% of eligible costs from its taxable income and, therefore, significantly reduce its corporation tax bill. This represents an additional corporation tax deduction of 130%.

For loss making studios, a rebate in the form of a cash payment is available of up to 14.5% of qualifying expenditure.

R&D tax relief can generally only be claimed for expenditure within the last two accounting periods.

What activities can qualify for Research and Development tax relief?

For tax purposes, R&D takes place when a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology.

It should be borne in mind that an activity that is eligible for R&D tax relief does not always need to result in a viable solution. Expenditure on activity that seeks a solution, but ultimately fails, can also form part of an R&D claim.

The criteria for qualifying costs and activities are purposely broad. HMRC stipulates that the important criterion is not ‘what’ is produced but ‘how’ it is produced. HMRC has confirmed, however, that no matter how original, a game storyline will not qualify as a scientific or technological advance, and therefore expenditure on the storyline will not qualify for R&D tax relief.

HMRC has provided the following example of the application of R&D tax relief in the context of the games industry:

A company realised that each object on a game’s screen had to be programmed in respect of its interaction with all the other objects. As the game became more complex, more objects were introduced and the amount of code required rose exponentially. The solution was to programme the properties of each object. When the objects interacted, a separate code was no longer required as the inherent properties produced the outcomes. The qualifying expenditure on developing this innovative code would qualify for R&D relief.”

Very small companies dealing in subcontracted work may qualify if the work undertaken is sufficiently innovative, even if the larger contractor’s project does not qualify.

What costs will qualify?

Costs incurred in respect of direct and externally provided staff, subcontracted R&D, consumables, software, trials, prototyping and independent research costs may all qualify for R&D relief.

How does Research and Development tax relief interact with other reliefs and state aids?

Where small or medium-sized enterprise* R&D tax relief is claimed on a project, that project cannot claim Video Games Tax Relief (VGTR). This means that if a studio chooses to claim VGTR, the same expenditure on a project would not qualify for R&D tax relief.

However, with the right advice and structuring, there can be ways for studios to take advantage of both VGTR and R&D tax relief. This is a complicated area and we recommend you take legal and accountancy advice.

Businesses that have taken advantage of any Covid-19 funding, e.g. the Coronavirus Business Interruption Loan Scheme, should note that many of these support schemes constitute state aid and so may have an impact on the availability of other state aid such as VGTR and R&D tax relief.

How to claim the Research and Development tax relief

You can claim R&D relief by entering the total qualifying expenditure on the full Company Tax Return form, CT600. A further report should be attached to the return which demonstrates that the expenditure was incurred because the company has addressed a technological uncertainty and attempted to overcome it.

Many businesses are deterred from making a claim due to the intensive reporting procedure and potential for further investigation from HMRC. However, there are specialist R&D advisers who can assist with assessing whether a business undertakes qualifying R&D and with identifying potential expenditure to be included in the claim.

Where can I find out more?

HMRC provides further guidance here: