What is Video Game Tax Relief
- Video Games Tax Relief was given approval by the European Commission and has been effective for expenditures incurred since 1 April 2014.
- Video Games Tax Relief (VGTR), also known as the UK Games Tax Relief Scheme, is a creative industry tax relief incentive funded by the UK government.
To qualify for VGTR, you need to meet the following criteria:
- Your company must be responsible for most of the planning, designing, developing, testing, and production of the video game and, therefore, be known as the Video Games Development Company (VGDC).
- The video game must be intended for commercial release but not created for advertising, promotion, or gambling (within the meaning of the Gambling Act 2005) purposes.
- The video game should qualify as “British” under the British Film Institute (BFI) Video Games Cultural Test. To pass the BFI cultural test, you must complete an online application form for each video game you want to claim VGTR for.
The BFI will assess your application and award points based on the cultural content of the game:
- its cultural contribution,
- its cultural hubs
- its cultural practitioners.
To pass the test, each video game must score at least 16 out of a possible 31 points, if passed you will receive a certificate, which will need to be provided to HMRC with Return
- At least 25% of your video game production costs must have been incurred within the European Economic Area (EEA).
What is the relief worth?
- Video Games Tax Relief works by enhancing the following costs whichever is lower by 100%
- 80% of the total core expenditure
- The actual EEA core expenditure incurred
If the game is profitable, the Video Game Tax Relief can be used to reduce a Corporation Tax bill by the enhanced cost, giving a tax saving of 19% of the enhanced costs. If the video game makes a loss, claimants can receive a cash payment from HMRC at a rate of 25%
Example 1: core expenditure all European
A VGDC incurs £300k of core expenditure on a video game, all of it in the UK or EEA.
Actual European core expenditure > 80% of total core expenditure.
The VGDC can claim VGTR on 80% x total core expenditure. Enhanceable expenditure is £260k, giving a tax saving on £45,600
Example 2: core expenditure part European, part non-European
A VGDC incurs £500k of core expenditure on a video game, of which £250k is European expenditure. The remainder is incurred in the US.
Actual European core expenditure < 80% of total core expenditure.
The VGDC can claim VGTR on actual European core expenditure. Enhanceable expenditure is £250k. giving a tax saving on £47,500
Example 3: co-development
A UK company incurs £500k of core expenditure on a video game. Its co-developer incurs a further £50,000 of core expenditure on the video game.
Actual European core expenditure > 80% of total core expenditure.
The VGDC can claim VGTR on 80% x total core expenditure incurred by the VGDC. Enhanceable expenditure is £400k.
Even though combined core expenditure on the video game (by both co-developers) was £550k, the limit is 80% of the total core expenditure incurred by the VGDC.
What is core expenditure?
Expenditure must be ‘core expenditure’ in relation to the video game, this includes expenditure incurred on:
- Designing, producing and testing the video game.
Excluded expenditure, includes expenditure incurred in:
- Designing the initial concept of the game.
- Debugging a completed game.
- Carrying out maintenance on a completed game.
Any costs in respect of games hardware or costs once a game is completed and ready for the supply to the public such as entertaining, advertising and marketing completed games do not qualify for relief.
Cost of auditing, bank interest and charges and insurance are not counted as core expenditure.
