Do your clients know about Video Games Tax Relief?
VGTR is still something many companies in the video games sector may not be fully benefitting from. Find out more.
A generous relief that’s well worth exploring
Video Games Tax Relief makes up part of a suite of government-backed tax incentives aimed at the creative industries. It allows eligible companies to receive a larger deduction on their Corporation Tax, or claim a payable tax credit against their taxable profits.
Here we’ve created this guide to demonstrate how businesses can benefit from this attractive tax relief. If any of your clients work in the video gaming sector, read on.
What is a video game in this context?
In order to claim VGTR it’s firstly important to understand what a video game actually is in this context. It’s essentially an electronic game (software), with relief also applicable in relation to the development of the game’s soundtracks.
The game itself must also be played using a video device. This could be a games console, portable games machine, monitor, mobile phone, television or tablet. The game must also have the capacity to be played by one or more players, and contain software or electronically stored content/sound effects that allow for play to take place. The events within the game must be controlled by the individuals playing, with the outcome of the game uncertain from the start. So, the player’s actions must drive the game, how it progresses and how it ends.
What types of content are excluded from the relief?
Not all types of video games and content will attract VGTR. No relief can be claimed if the game was produced purely for marketing or promotional purposes, or to facilitate gambling.
Another crucial point to note is that the video game must pass the BFI cultural test for video games.
Which companies qualify?
A company will need to be classed as a Video Games Development Company (VGDC) in order to receive VGTR. To become a VGDC, the company must have:
- Produced the video game itself (outside expertise is acceptable)
- Treated individual games produced as a separate trade.
Note that there can only be one VGDC per game.
What does a VGDC actually do?
VGDCs in this sense are responsible for:
- Actively planning and designing a video game, as well as producing it and testing it
- Negotiating and paying contracts, as well as rights relating to the video game
Some work can be subcontracted out to third parties, although limits apply to how much subcontractors can be paid (this is something our team can offer advice on).
When claiming Video Games Tax Relief, the expenditure incurred must have been central to the design, production and testing of the video game itself.
Note that certain types of expenditure cannot be included in a VGTR claim. These include costs in relation to:
- Designing the game’s concept
- Maintenance undertaken after the game has been completed
- Marketing or advertising activities
- Debugging work once the game is complete
Bank interest or charges as well as costs relating to auditing also cannot be included as they’re not classified as core expenditure. There is also no relief available for expenditure which has also qualified for R&D Tax Credits.
I think my client’s project might be eligible for VGTR. What documents will they need to apply?
The application form itself can be found here. The claimant will need to fill out a new application form for final certification, even if other claims have been done in the meantime. The secretary or director of your client’s studio will also be required to complete a statutory declaration - this is the legal document that describes exactly who the claimant is and why they believe VGTR applies.
Game design documents, budgets, scripts and gameplay or other relevant screen shots are also useful to attach as part of an application for VGTR. It can be a rather daunting process, especially if it’s not one your client has complete before. This is why it’s so important to support them by contacting us to discuss their claim further.
Is it possible to claim both R&D Tax Relief and VGTR?
The good news is yes, it is possible to claim both. As experts in both R&D Tax Credits and VGTR, this is a question we’re commonly asked.
However, claimants need to bear in mind that they cannot claim both R&D Tax Credits and VGTR on the same project. Although SMEs are allowed to claim R&D Tax Credits on a specific project, the VGDC is not able to claim other state aid relief (which includes VGTR and any R&D grants) for that project. So, if a video gaming company wishes to apply for VGTR, any R&D work that forms part of that same project will need to be disregarded for R&D tax relief purposes.
The rules aren’t quite the same for larger companies claiming R&D Tax Credits using the RDEC scheme however. This is because RDEC is not classed as state aid, which means it may well be possible to claim R&D Tax Credits and VGTR on the same piece of work. For more on this read our article R&D Tax Credits SME And RDEC to discover the key differences between the two.
How your clients can make a high quality, accurate claim for Video Games Tax Relief with full support from Myriad Associates
Hopefully this whistle-stop tour of VGTR has given you a clearer understanding the relief and whether any of your clients might benefit. However, as with any tax reliefs there’s more to the scheme than meets the eye and claiming can be notoriously tricky. So let us help you help your client with all things VGTR.
If you would like to discuss your clients’ unique requirements or wish to ask the team a question, simply call us on 0207 118 6045 or use our contact page. Thanks to our two decades’ experience entirely dedicated to area of R&D tax reliefs and funding, we will work alongside you in offering your clients a more complete accountancy service. Don’t forget to also look at the other ways your firm can partner with us.