Video Games Tax Relief
What is Video Games Tax Relief?
Video Games Tax Relief (VGTR) is a government scheme that allows UK game developers to apply for tax relief funding from HMRC. The computer game must qualify as being British under the Video Games Cultural Test which is administered by the British Film Institute (BFI). Video Games Tax Relief is part of the Creative Sector Tax Relief which also covers film production, animation and high-end television. Video Games Tax Relief is also known as the UK Games Tax Relief Scheme.
Any video games must qualify under the Video Games Cultural Test in order to claim the tax relief
Watch our video explaining VGTR (1min 40s)
How does VGTR work?
VGTR works by enhancing expenditure incurred in the development process and creates an additional deduction to be set against the profit or, where it creates or extends a loss, allows that loss to be surrendered to HMRC for a payable tax credit thus providing the company with either a reduction in their corporation tax liability or a repayable tax credit.
Video Games Development Companies (VGDCs) who produce qualifying video games will qualify.
As this is a Corporation Tax relief, sole traders or partnerships which are taxed under Income Tax rules do not qualify.
To qualify as the VGDC it must:
- be incorporated in the UK or have a UK permanent establishment that falls within the charge to UK corporation tax.
- be responsible for designing producing and testing the video game
- be actively engaged in the production planning and decision making throughout the process
- directly negotiate, contract and pay for rights, goods and services in relation to the video game
How does a video game qualify?
A video game qualifies if it is:
- intended for supply to the general public;
- has been certified as a British video game by the BFI.
- Not less than 25% of the total core expenditure must be European Economic Area (EEA) expenditure.
What is EEA expenditure?
EEA refers to the European Economic Area which includes all of the EU countries as well as Iceland, Liechtenstein and Norway. EEA expenditure is any expenditure incurred on goods or services provided from within the EEA.
What is the BFI Cultural Test?
In order for a video game (or film, TV programme or animation for that matter) to qualify for the tax relief, it must first be certified as culturally British.
The video game achieves certification by achieving a minimum of 16 points from a possible 31 available covering the following sections:
- Cultural content (16 points available)
- Cultural contribution (4 points available)
- Cultural hubs(3 points available)
- Personnel (8 points available)
Applications for certification are made to the BFI Certification Unit. Whilst the team at the BFI are universally lovely and helpful, the process can a little clunky. Ideally, a game would achieve the 16 points needed in Sections A and B alone, which will save the time and cost of obtaining an accountants’ report.
Which expenditure qualifies for enhancement?
VGTR is only available on core expenditure that is European Economic Area expenditure. Core expenditure is an expenditure that is incurred on:
- producing, and
- testing the game
Not all expenditure is core expenditure. Expenditure that is not core expenditure is referred to as non-core expenditure.
Non-core expenditure includes expenditure on:
- original concept design
- post-release maintenance
How is VGTR claimed?
VGTR is claimed through the Company Tax system which means that claims must be made within a Company Tax Return or an amendment to a Company Tax Return.
Claims must include computations in respect of all qualifying productions and detail the income received and the expenditure incurred.
The expenditure should be split between core and non-core and information should be provided of any apportionments used.
As specialists in Video Games Tax Relief, we are here to help you achieve the maximum benefit available whilst making the process as simple as possible.