HMRC Grand Theft Auto
In 2016 the UK video games industry contributed £1.52bn to the UK economy, employing 20000+. The UK video games share of the UK marketplace alone was 17.3% and yet the take up of the Video Games Tax Relief (VGTR) is so appallingly low that a gamer might automatically call it grand theft on the part of HMRC if they weren’t trying to give the relief away!!
Why this is happening is not clear but it could be similar to the situation we found ourselves in a few years ago regarding Research & Development Tax Relief. Even HMRC remarked on how low the interest in that relief was and the accusing finger was pointed not only at the companies in the R&D sector but also their accountants for a lack of awareness of the relief and where awareness existed a lack of understanding of the mechanics of it and how widely it could apply. I think I can hold my hand up to that accusation. We must not let this happen to this relatively new relief (April 2014) this time round.
Video Game Tax Relief (VGTR)
VGTR is a government incentive scheme aimed at UK game developers which enables them to claim additional relief of up to 20% of the company’s core production costs relevant to that particular game. Loss making games can surrender the loss for a payable tax credit of 25%.
Who is eligible?
Companies who are liable to UK corporation tax who are involved in developing computer games. These are games that are played through electronic devices such as smart phones, tablets, handheld consoles and other mobile set ups.
What are the basic conditions?
1) The company making the claim does so on a game by game basis to the extent that any game being claimed for has to be treated as a separate trade in the company’s corporation tax computation.
2) If there is more than one company creating the game then it is the one who is most involved in the decision making, the production, design and the testing of it who can make the claim. If there is a dispute then HMRC decide. That lead company can elect for another company to claim the relief instead of themselves
3) The game must qualify as being British under the Video Games Cultural Test which is overseen by the British Film Institute (BFI). The Cultural Test is broken down into 4 sections using a points-based system. The game needs to attract 16 points out of a possible 31 to pass. The 4 Cultural sections are content, contribution, hub and practitioners. Of those who are aware of the relief, in some cases, they may interpret the parameters in too narrower way. Therefore, they fail to even contemplate applying for the Cultural Test Certificate, thereby missing out on a generous tax break.
4) The VGTR claim cannot be made until at least the interim Cultural Certificate has been issued by the BFI which will usually be done whilst the game is still in development. The final certificate would be issued after the game is completed and ready to be made available to the general public. Note HMRC can claw back the relief already claimed if the final certificate is not issued.
How does VGTR work?
The company can claim VGTR up to a maximum of 80% of the game’s core expenditure costs. This is the lower of either:
a) The core expenditure incurred in the European Economic Area (EEA) or
b) 80% of the core expenditure. So for VGTR purposes the relief is capped at a maximum of 80% of total core expenditure.
What is eligible core expenditure?
The sort of expenditure allowable is staff costs, subcontractors’ costs up £1m per game, rights to use books, videos, music as the basis for the game and celebrity image rights etc.
Costs which are not allowable are things such as completion bonds, insurance, development costs incurred outside the EEA, entertaining, publicity and promotions as well as audit fees.
The relief, which includes a payable tax credit at a rate of 25% for loss making games, is one which has undoubtedly be missed by many companies and their accountants. Now is the time to appraise clients and prospects alike to see if they qualify. It is also potentially feasible to look back at the previous two accounting periods, if appropriate and applicable to do so.
ProActivTax Half Day Tax Events
We are running a series of half day tax events in February and March covering off a range of tax topics with a guest speaker in tow. Why not come along and see us. The cost is only £45 + VAT and is CPD certificated. To see if there is an event near you please click here.
ProActivTax help accountants across the UK
ProActivTax was set up to help accountants around the UK to develop their tax offering to their existing client base and to build up their tax profile within their local community and beyond.
All ProActivTax members have access to our tax specialists who cover the full range of taxes within the safe confines of the tax legislation. We have access to VGTR specialists who can carry out the appraisal to see whether or not your client qualifies and then execute the work to make the relevant claim.
We also have a number of tax resources (such as the Pension Resource/ two Year-end Planning Resources/Property Resource/Incorporation Resource and Remuneration Review to name but a few), tax marketing, tax training/webinars/seminar programmes and us.
If you would like to find out more please click here to access my online diary or simply drop me an email with some provisional dates and I’ll set up a conference call.
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