Focus On: Video Games Tax Relief
Could you be eligible?
Are you a video game developer based in the UK?
Do you think your game would be classified as ‘culturally British’?
If you have answered yes to the above, then you could be eligible to claim video game tax relief on your production costs.
Since 19 August 2014, video games tax relief has been available for companies producing games that are certified as culturally British. The ‘cultural test’ ensures that the tax relief benefits support the production of British games.
In order to qualify, video games must achieve a level of points which they are awarded based on their cultural content, cultural contribution and the location of the game’s development and nationalities of key personnel working on the project. Relief on video games applies for games:
- that are intended for the supply to the general public
- that pass the cultural tests: they are certified by the Secretary of State as British video games
- where at least 25% of the core expenditure on the game is incurred by the company in the European Economic Area (EEA).
What is a video game?
This relief defines a ‘video game’ as an electronic game (software)and includes the development of the games' soundtracks. It is played through a video device, such as television, monitor, mobile phone, tablet devices or handheld portable games machine.
What’s included under this title?
The game must provide sufficient options for a player to directly control the actions and events depicted. The player’s actions need to have a significant impact on the outcome of the game.The software and other electronically stored content and information; including, the audio content, such as sound effects and soundtrack and any filmed or animated sequences for narrative purposes, or options to adapt the game to suit the desires of the player.
What’s not included?
The video device and the equipment hardware required to play the game. Where a video game is designed to be played on a specific console e.g. "X-box", "Wii", "Playstation", or handheld device, such as Nintendo DS, the development of the hardware is not treated as part of the design development costs of the game.
There is no relief for games produced for advertising, promotion or gambling.
Which companies qualify?
- A company is a qualifying video games development company (VGDC) if it produces the video game
- Each video game is treated as a separate trade
- There can only be one VGDC per game.
A VGDC is:
- responsible for designing, producing and testing the video game
- actively engaged in planning and decision-making during the design, production and testing of the video game
- in charge of negotiating, contracting and paying for rights, goods and services relating to the video game.
Activities may be subcontracted to third parties. Subcontractors are unlikely to qualify as VGDCs.
What qualifies as expenditure?
Expenditure is classified as "core expenditure" in relation to the video game. This includes expenditure incurred on the designing, production and testing the video game.
What doesn’t qualify as expenditure?
Excluded expenditure, includes cost arising from:
- designing the initial concept of the game
- debugging a completed game, or carrying out maintenance on a completed game
- 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
- costs of auditing, bank interest and charges and insurance.
Note: There is no relief for costs which have also qualified for R & D relief.
What counts as video games income?
In calculating the profit or loss from the development of a video game, income includes:
- receipts from the sale of the video game, or rights in it
- royalties or other payments for the rights to use the video game or aspects of it (for example, characters or music)
- payments for rights to produce games or other merchandise
- receipts by way of a profit share agreement.
Video Game Tax Credits (VGTCs) due or paid to the VGDC in connection with a video game are not regarded as 'income from the relevant video game'.
How can I make a claim for video games tax relief?
A claim is made under corporation tax self assessment. A VGDC can claim VGTR on its enhanceable expenditure which is the lower of:
- 80% of total core expenditure, and the actual EEA core expenditure incurred.
The amount of VGTCs repayable in respect of the surrenderable loss for any accounting period is 25% of the lower of:
- The amount the company’s available loss for the accounting period, and the enhanceable expenditure for that period.
For further information about video games tax relief or to discuss your business' needs in more detail, please contact a member of our Tech Team or send us an enquiry online. You can also download our latest 'Focus On: Video Games Tax Relief' brochure.