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 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.
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. Where it creates or extends a loss, it allows that loss to be surrendered to HMRC for a payable tax credit. It thereby provides the company with either a reduction in their corporation tax liability or a repayable tax credit.
Who qualifies?
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, a company 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.
- It has been certified as a British video game by the BFI.
- Not less than 25% of total core expenditure is 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?
The British Film Institute (BFI) is responsible for assessing applications for British video game certification. A Video Game Development Company (VGDC) needs to make an online application for each computer game that they would like certifying as a British video game. You can apply for an interim certificate if the game is still under development or has not been started and a final certificate once it has been completed and made available to the public. A copy of the final video game will be reviewed by BFI before issuing a final certificate.
In order to be certified as a British video game, the BFI must be satisfied that the video game passes the relevant cultural test. The cultural test for video games is set out in The Cultural Test (Video Games) Regulation 2014. A video game will pass the cultural test if it is awarded 16 points out of a possible 31. The test looks at the cultural content of the game, its cultural contribution, its cultural hubs, and its cultural practitioners. For more information see the cultural test for video games.
In addition to completing an application form for each game, a Statutory Declaration to certify that the truth of the particulars in the application is also required. The Statutory Declaration may be made either before a practising solicitor, general notary, Justice of the Peace or other officer authorised by law to administer a statutory declaration under the Statutory Declaration Act 1835.
An Accountant’s report is required if an application for a final certificate relies upon points in Section C and/or Section D of the cultural test. The Accountant Report must be prepared by a person who is eligible for appointment as a company auditor under Section 1212 of the Companies Act 2006.
We can guide you through the entire process of obtaining VGTR, and can advise you at the earliest opportunity as to whether or not your game is likely to be eligible.
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.
What 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:
- designing
- 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
- debugging
- post-release maintenance
- financing
- marketing
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