VGTR or R&D Tax Relief - Can you claim both?
As leading specialists in R&D tax credits and video games tax relief (VGTR) claims, we often get asked the question "Can I claim both R&D Tax Relief and VGTR?". In this blog, we explain via content from our latest VGTR eBook, how you could be missing out on claiming both.
Some video game development companies (VGDCs) may be carrying out research and development and/or may have claimed Research and Development (R&D) tax relief in the past.
The good news is, it is possible for a company to claim VGTR and R&D tax relief however, both cannot be claimed on the same project. Where small or medium-sized enterprise R&D tax relief is claimed on a specific project, the VGDC can’t claim for any other state aid reliefs (including VGTR and grants) for that project. This means that if a video games development company chooses to claim VGTR, any research and development bubble within the same project wouldn’t qualify for R&D tax relief. For example, the development of an innovative game engine would be claimed under R&D tax relief whilst the production of a qualifying game would be claimed under VGTR.
For large companies who carry out research and development and claim under the large companies’ scheme, known as RDEC, the rules are different. This is because R&D tax relief claimed under the large scheme isn’t state aid, and therefore the areas of research and development within a project may be eligible for R&D tax relief.
How to claim your full entitlement
Having a good understanding of the BFI Cultural Test guidance and HMRC Video Games Tax Relief rules will help you claim your full entitlement to VGTR. It will also allow you to make a more informed decision on what games to produce, and how to decide which country the production costs should originate from.
We recommend that you consider setting up a type of subsidiary company known as a Special Purpose Vehicle
(SPVs) for each game you develop (subject to budgeted costs being reasonably substantial). The SPV structure allows you to accurately allocate costs and revenue which will make the HMRC reporting simpler. It will also allow you to maximise the Video Game Tax Relief for loss-making games (after the additional relief), as you can surrender the loss for a payable tax credit at a rate of 25%.
It is good practice to seek advice and guidance from a specialist tax adviser with a successful track record in handling VGTR claims to maximise your claim. VGTR is a form of tax relief that is included in your normal year-end accounts. You can pass on information from your specialist adviser to your normal accountant for inclusion in your annual company tax return, or you can submit your VGTR claim as an amended Corporation Tax return at a later date.
For more information on VGTR, download our free eBook