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The British Video Games Industry is going through some exciting times right now. According to the trade association that represents the UK gaming sector - TIGA - the industry is worth well over £500 million to Britain in tax take. The video games market globally has grown dramatically in recent time too, and is now worth up to $96 billion.
However, TIGA also points out that just under 30% of UK games companies in existence over the last five years have now shut down. This is largely because the investment required in creating and marketing a successful video game is massive. But this is where Video Games Tax Relief (VGTR) has been a lifeline for those still hanging on, offering a much-needed financial boost to gaming companies up and down the country.
The VGTR scheme is separate to R&D Tax Credits and comes under one of the eight creative industry corporation tax reliefs administered by HMRC. You can find out more on these here What Financial Support Is Available For The UK Creative Sector?
Very well received. VGTR began life back in April 2014. Around 300 successful VGTR claims are made every year in the UK, with a total combined relief worth around £75 million.
Companies are allowed to make more than one claim over the course of a game’s development, as different parts of the process can be classed as separate qualifying entities. Since the scheme’s inception, nearly £700 million has been invested, resulting in 295 completed UK video games.
Many of our clients come to us with the same question - how does VGTR apply to me and my company?
In essence, VGTR can enable you to recoup as much as 20% of your development and production costs which is received as a relief on your Corporation Tax. Even if your game doesn’t do as well as hoped and you end up making a loss, you can still get a 25% tax credit if surrendering the loss. At the time of writing, no minimum spend on a game has been set by HMRC.
The criteria for VGTR are fairly basic, however the various regulations can be rather more complex. Essentially, your company must be registered in the UK, be designing and developing a video game destined for public consumption, and be liable for UK Corporation Tax. The project undertaken in creating the game must have required your company to spend money, and at least 25% of this expenditure must have occurred in the European Economic Area (EEA). The intellectual property rights to the tech don’t necessarily have to be owned by you, and the game doesn’t have to be finished before you make your application.
Another big part of obtaining VGTR is in gaining certification from the BFI to prove your game is British. We’ll talk about this in more detail below.
In order to obtain certification as a British video game (a vital component of your VGTR claim) the game has to pass a Cultural Test, which the British Film Institute (BFI) administers. Points are awarded across four different sections, and to be successful the game needs to achieve at least 16 points out of a possible 31.
In general, most companies will look to apply for points in Section A - Cultural Content (which focuses on the game’s characters, locations, dialogue and subject matter), Section C - Cultural Hubs (where the work was located) and Section D - Practitioners (where the development team are based). Many businesses don’t both with Section B because, unlike the other three categories, Cultural Contribution open to interpretation thanks to its highly subjective nature. This uncertainty has caught many applicants out, resulting in an application that’s less than inspiring. It can delay claims too, sometimes by as much as three months.
You can find out more about the BFI Cultural Test in our post VGTR – An Overview Of The BFI’s Cultural Test.
As specialists in the field of both VGTR and R&D Tax Credits, this is something we get asked often. Some video game development companies (VGDCs) could be undergoing research and development activities and/or could have claimed R&D Tax Credits in the past.
The good news is yes, companies can claim VGTR and R&D Tax Credits, however they cannot both be claimed on the same project. Although SMEs can claim R&D tax relief on a specific project, the VGDC is barred from claiming any other state aid reliefs (including grants and VGTR) for that work. This means that if a video games development business wishes to claim VGTR, any piece of R&D work within that project would not be eligible for the relief. For instance, the development of an innovative game engine would attract R&D Tax Credits, whilst the production of an eligible game would attract VGTR.
For larger organisations that carry out research and development and claim under the large companies’ branch of the R&D Tax Credits scheme (RDEC) the rules aren’t the same as for SMEs. This is because R&D tax relief in this instance isn’t classed as state aid, therefore meaning some pieces of research and development within a project could well qualify. For more on this read our article VGTR or R&D Tax Relief - Can you claim both?
Hopefully we’ve provided a clearer understanding of what VGTR is and how it can benefit your company. However, there’s still plenty we haven’t looked at here, and the application process is notoriously complex. There’s plenty of room for mistakes, which can be expensive and stressful if uncovered by HMRC. So let us help you make sure your application process for VGTR goes smoothly every time.
If you need further advice about your application for VGTR, please do get in touch. We are a team of R&D tax relief accountants and advisors with nearly 20 years’ experience and can help you through the whole VGTR application process. Call us today on 020 3994 2308 or use our contact page.