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 computer 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.

To be eligible for Video Games Tax Relief, your company must be responsible for the majority of the planning, designing, developing, testing and producing of a game. This company will be called the Video Games Development Company (VGDC).  At least 25% of your eligible costs must be incurred in the European Economic Area.

If two or more companies are working on the same game, only one may claim for VGTR. Therefore it’s important to establish which company is the Video Games Development Company (VGDC) and will be making the claim.

Computer game developed for any platforms can be claimed, this includes:

• Video console games
• Games for PCs
• Games for smartphones, tablets, and other mobile devices.

• anything produced for advertising or promotional purposes
• anything produced for the purposes of gambling (within the meaning of the Gambling Act 2005)

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 certficate 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 as 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 Accountants 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.

Video Games Tax Relief is worth up to 20% of the core production costs of a game. The Video Games Development Company receive tax relief based on the lower of either (a) the EEA expenditure or (b) 80% of the core expenditure.  Loss making games can surrender the loss for a payable tax credit at a rate of 25%. The surrendable loss is the lower of either (a) the available loss or (b) the qualifying expenditure available.

Video Games Tax Relief is claimed as part of the Company Tax Return (CT600) that is filed with HMRC.  You need to produce a profit and loss account for each video game as it need to be reported to HMRC as a separate trade.  The HMRC rules for Video Games Tax Relief (VGTR) sets out a consistent approach to calculating taxable profits of VGDCs which applies regardless of whether or not VGTR is claimed in respect of a video game. This approach is important when considering relief for losses.  There are special provisions which restrict the ways in which losses arising from a video game development trade can be used and this will vary depending on whether or not the video game has been completed and the trade has ceased.

Having a good understanding of the BFI Cultural Test guidance and HMRC Video Games Tax Relief manuals will ensure that you claim your full entitlement.  It will also allow you to make more informed decision on what games to produce and what country the production costs originate from.

We recommend that your consider setting up Special Purpose Vehicles (SPVs) for each game (subject to budgeted costs being reasonably substantial).  The SPV will allow you to accurately allocate costs and revenue which will make the HMRC reporting aspects more simple.  It will also allow you to maximise the Video Game Tax Relief as for loss making games (after the additional relief) you can surrender the loss for a payable tax credit at a rate of 25%.

The BFI will normally issue a certificate within 28 days of the receipt of a fully completed application.  Delays may occur where application forms are not properly completed or where it is necessary to seek further information.  Where applicants are aware of a deadline by which a certificate will be required, they should submit their application in sufficient time and attach details of such deadline.

Applicants who are not ready to make a full application (information may be incomplete or missing a signed declaration) can submit a draft application and receive a letter of comfort that the video game should pass the Cultural Test.  This letter of comfort cannot be used to submit a claim to HMRC but may reassure the applicant with their plans and help with financing. 

An interim certificate will be issued before a video game is completed if the BFI and Department of Culture, Media and Sport (DCMS) are satisfied that the video game passes the Cultural Test based on the proposals set out in the application.

A final British video game certificate will only be issued after the video game is completed. Applications for a final certificate should therefore not be submitted prior to completion of a video game.  A video game is considered completed when it is first in a form in which it can reasonably be regarded as ready for copies of it to be made available to the general public.

The Accountant's Report is required when an application is claiming points in Section C and/or Section D.  The purpose of the Accountant's report is to verify the total and UK expenditure on the work in Section C and the nationality or ordinary residence of all persons in Section D in relation to who the applicant is applying for point to be awarded.  The Accountant's Report must be prepared by a person who is eligible for appointment as a company auditor under section 1212 of the Companies Act 2006.

The typical cost of an Accountants Report is between £500 and £2,000 per application.  The cost will vary dependent on video game costs and number of applications being submitted.

The Cultural Test (Video Games) Regulations 2014 require the applicant to make a statutory declaration as to the truth of the particulars given in the application.

A statutory declaration is required for both Interim and final certification.  The statutory declaration may be made either before a practicing solicitor, general notary, Justice of the Peace or other officer authorised by law to administer a statutory declaration under the Statutory Declaration Act 1835.

Non-core video game expenditure relates to initial design stage activities or commercial exploitation of the video game.  

For example, initial concept artwork used as part of the process of establishing the commercial viability is not core expenditure and not eligible for VGTR.  Expenditure on advertising a video game is not development expenditure and therefore not core expenditure.

Ineligible expenditure includes entertaining, publicity, promotion, audit fees, interest, completion bonds and other forms of insurance.

The amount of Video Games Tax Relief (VGTR) to which a Video Games Development Company (VGDC) is entitled in respect of a video game trade is determined by the amount of core expenditure which is also European Economic Area (EEA) expenditure.

Where a video game is partly produced in the EEA and partly outside of the EEA it will follow that some goods and services may be non-EEA. In such cases, it will be necessary to make an apportionment of the relevant core expenditure between EEA and non-EEA expenditure.

This applies in the case of goods and services provided throughout core expenditure stages. That is, it applies to expenditure incurred during pre-development, production and post-development.

The method for making an apportionment is not fixed and can be determined on a case by case basis. The key criterion is that it must be done on a fair and reasonable basis.

There will often be more than one ‘fair and reasonable’ basis. The requirement is not that the apportionment must be made using the fairest and most reasonable basis, but simply that it must be made on a basis that is fair and reasonable.