If you're a UK video game developer, there's some good news on the tax front. The Video Games Expenditure Credit (VGEC) replaced the old Video Games Tax Relief (VGTR) for costs beginning in April 2024, bringing with it a more streamlined approach to claiming tax relief on your development costs.

What is the Video Games Expenditure Credit (VGEC)?

At its core, VGEC is a UK government scheme which offers tax credits to companies developing qualifying video games. But here's what makes it different from its predecessor: it's an "expenditure credit" rather than an additional deduction from your taxable profits.

The key benefit is straightforward: studios can recover a significant portion of their UK development costs, providing crucial cash flow support during the lengthy game development process.

However, you must meet specific qualification criteria and prove it to benefit from the scheme.

Why Was VGEC Introduced?

The introduction of VGEC wasn't just about replacing VGTR; it represented a broader alignment with new rules governing creative industry tax reliefs across the UK. The government aimed to create a simpler, more accessible system that could effectively support studios of all sizes.

This change reflects the UK's commitment to maintaining its position as a global hub for video game development. VGEC ensures both established companies and emerging talent have the financial support they need to compete internationally.

Who Can Claim VGEC?

To claim VGEC, you need to tick several important boxes. Your company must be based in the UK and responsible for the design, development, testing, and production of the video game, at a first pass.

Once you’ve got the basics, this is where the Cultural Test comes in. The British Film Institute (BFI) administers the Cultural Test to evaluate if your game is considered “British”, based on factors like:

• Where the game is set or based
• The cultural background of lead characters
• The cultural heritage reflected in the game's content
• Where development work takes place
• The cultural background of key creative personnel

Only games considered “British” can qualify for VGEC. There are additional requirements for the game (e.g., no restricted content, and the game must be intended for public release).

VGEC is designed to benefit studios across the spectrum. Whether you're a small indie team working on an innovative mobile game, a mid-size studio developing for multiple platforms, or a large AAA developer, the scheme can provide valuable support – provided your games meet the qualification criteria.

What Costs Qualify for VGEC?

Understanding which costs qualify is crucial for maximising your claim. The scheme covers core development expenditure in the UK.

The development phase (i.e., from the point the game is greenlit to the point it is ready for the public) is considered core expenditure. Conceptual development – when your team is deciding whether to proceed with the game – cannot be included.

Eligible cost categories include:

• Staff salaries for developers, artists, designers, and other development team members
• Freelance contractor fees for development work
• Production expenses directly related to game development
• Equipment and software costs used in development

Commercialisation activities are no longer eligible; they are activities following the point when a game could conceivably be released to the public. This includes all distribution, marketing and finance activity, even if it’s crucial to the game's success.

General overhead costs not directly attributable to development are also ineligible.

How Much Can You Claim?

The current headline rate is 34% of qualifying expenditure – a substantial return that can significantly impact your project's financials.

VGEC is an "above-the-line credit," which means it appears as income in your company accounts rather than as a tax adjustment.

It's important to understand the full picture: the credit is treated as taxable income, subject to Corporation Tax at the current rate of 25%. This means the real-world benefit works out to 25.5% of qualifying expenditure (34% minus the 25% Corporation Tax).

Companies can receive their expenditure credit in two ways: either as a deduction against their tax bill or as a direct cash payment.

How to Apply for VGEC

The application process involves several key steps, but with proper preparation, it's manageable. While it's possible to handle VGEC claims internally, many studios find that working with accountants or tax advisors who specialise in creative industry reliefs makes the process smoother and helps ensure maximum claims are achieved.

Step 1: Pass the Cultural Test

Before you can claim VGEC, you must obtain a certificate from the British Film Institute (BFI) confirming that your game passes the Cultural Test. This involves submitting detailed information about your game's cultural content and development process.

Step 2: Document Qualifying Expenditure

Gather comprehensive records of all qualifying development costs. This means maintaining detailed records of staff time, contractor payments, and production expenses that relate directly to your game's development.

You’ll need to prepare a trade schedule with detailed analysis of your game’s costs. This can be challenging, especially with multiple ongoing games, so it may be worth getting a consultation before undergoing the process.

Step 3: Submit Your Claim

VGEC claims are submitted as part of your company's tax return, accompanied by an Additional Information Form that provides specific details about your qualifying expenditure and BFI certification.

You should keep hold of all evidence for your costs, analysis and game development, especially for any connected party costs. This will be critical in the event of a compliance check and useful for your own records when making your claim. This goes double for games that are being developed across multiple accounting periods.

Why VGEC Matters for Your Studio

Game development involves significant upfront investment with uncertain returns. VGEC helps reduce this financial risk by providing guaranteed returns on qualifying development costs.

The scheme helps keep the UK attractive for both talent and investment, ensuring British studios can compete effectively with international competitors who may have access to their own government support schemes.

For studios working on longer development cycles, the ability to claim back development costs can provide crucial cash flow support that enables projects to reach completion.

Ready to explore your VGEC claim?

If you're developing a video game that might qualify for VGEC, we strongly encourage exploring your eligibility as early as possible in your development cycle. The earlier you understand the requirements, the better you can structure your development process to maximise your potential claim.

The complexities of tax relief schemes mean that professional advice can make a significant difference to both the success of your claim and the amount you can recover. Get in touch with our specialists who can guide you through the process and help ensure you're making the most of this valuable support scheme.

For a deep-dive on all things VGEC, including qualifying costs, BFI certification and example claim calculations, download your free copy of our comprehensive eBook here.