Will Video Games Tax Relief still exist after Brexit?

Brought to you by Myriad Associates

The UK video games industry has recently announced that despite Brexit uncertainty, the Video Games Tax Relief (VGTR) scheme will remain in existence right through to 2023. Introduced in 2014, the European Commission has allowed this very popular tax relief programme to continue on for at least three more years. This is great news for the UK’s gaming sector in the midst of stiff overseas competition, where generous tax benefits can be enjoyed by video games producers across the world.

TIGA is the trade association that represents the UK game industry, as well as games developers and digital publishers. It has welcomed the news that VGTR will be continued as it enables the UK video games industry to compete on a more level playing field in a global market. It also promotes the production of video games which are culturally British, whilst encouraging vital economic growth.

Essentially, VGTR will continue in its promotion of job creation, investment and business growth throughout such a highly skilled, highly technological industry. Ukie, the trade body for the UK's gaming and interactive entertainment industry also highlighted the importance of this decision. In one of its published website articles, it stated that it has been working closely with the UK government on re-notification and will continue to make sure that the UK tax relief scheme remains open to all. It also reinforced the need for a regular review of the scheme to make sure it retains its competitiveness compared to similar reliefs, both in the EU and beyond – particularly after Brexit. Indeed, in the five years since VGTR was unveiled, over 300 video games have benefitted from VGTR across the UK. This accounted for £886 million in total expenditure and £693 million of UK expenditure.

So what exactly is Video Games Tax Relief?

Video Games Tax Relief is a tax relief that games production companies can claim in respect of costs incurred during the development of British video gaming software. The relief provides either a repayable tax credit on the company’s Corporation Tax, or an enhanced deduction of expenditure.

Which video games are eligible for VGTR?

VGTR can be applied to any video game that:

  • Passes the cultural test as certified by the BFI
  • Is intended for supply to the general public
  • Can prove that at least 25% of the game’s core expenditure was incurred on goods and services that originated from within the European Economic Area (EEA)

What constitutes a video game in this sense?

A video game in its literal sense is an electronic game which is played through a video device, such as a computer, television, tablet device, mobile phone or other handheld portable gaming machine. In regard to VGTR, it is essentially an electronic game (piece of software) which must include the development of a game's music and sound effects. This software, along with other electronically stored information and content, includes the full soundtrack plus any animated or filmed sequences and narrative. It also includes the option for players to adapt the game as they wish, for example by creating avatars.

Video games in respect of VGTR are not about the equipment, hardware and video devices that are needed to play them – only the software. Where a video game is designed specifically to be played on a certain console, such as a Playstation or an Xbox, or a handheld device like a Nintendo DS, the development of the hardware is not regarded as part of the game’s development.

Video games must also sufficiently allow players to directly control the actions and events that occur within them. In order to be classed as a “game” it must have an uncertain outcome, and it must be down to the player to determine how the game ends.

Excluded content

VGTR cannot be applied to the development of games that have been created specifically for the purposes of promotion or gambling. Games containing advertising are not necessarily excluded, neither are games that have some element of gambling, as long as no actual cash is paid out.

Which companies qualify for VGTR?

VGTR can be claimed by any eligible video games development company (VGDC) that has produced a video game. Each game is considered to be a separate trade and only one VGDC is permitted per game.

What types of expenditure qualify for VGTR?

The money a company spends in relation to a video game must be "core expenditure". This includes anything that has been spent on designing and developing the video game, as well as testing it.

Some expenditure is excluded though, such as:

  • Designing the initial concept of the game
  • Debugging a game that has been finished
  • Carrying out maintenance on a game that has already gone to market

Any expenditure made with regard to gaming hardware, or money spent on a game that has been completed and is ready for supply to the public, also does not qualify for VGTR. Other costs which don’t qualify include bank interest, auditing costs and insurance, because they are not considered to be core expenditure. Additionally, there is no relief for activities which are also eligible for R&D Tax Credits.

Calculating video games income

When calculating how much profit or loss the development of a video game has incurred, income includes:

  • Royalties or other payments for the rights to use the video game or aspects of it (this could be music or avatars for instance)
  • Receipts from the sale of the video game, or rights to it
  • Money acquired for rights to produce the game or other merchandise
  • Receipts acquired due to any profit share agreements

Want to know more?

If you’re an accountant, or part of an accountancy firm, that deals with clients in the video games industry, they could well be eligible for Video Games Tax Relief. If this is something that’s new to you or you wish to know more, Myriad Associates is made up of a highly experienced team of experts in this field and can offer advice to suit your client’s requirements. Call us today on 0207 118 6045 or use our contact page.