The government-backed Video Games Tax Relief scheme (VGTR) was introduced in April 2014 to incentivise video game development companies to produce innovative games in the UK. The COVID-19 pandemic boosted the UK gaming market, which is now worth an estimated £7 billion. With the industry reaching record highs, more businesses than ever are eligible for VGTR. We take a look at what deductions are available, and what criteria you must meet to receive relief.
Part of the government’s Creative Industry Tax Relief scheme (CITR), along with eight other corporation tax reliefs within the creative industry, video games tax relief offers extensive support for companies in the gaming sector. Under the CITR, businesses can receive generous tax benefits, so eligible companies in the creative industries do not want to miss out.
How does this niche aspect of UK tax law operate? Craig Harman, a tax specialist and partner at Perrys Chartered Accountants, explains:
“Our clients can find the ins and outs of the CITR a bit daunting, but essentially, the Video Games Tax Relief scheme works by offering companies a tax rebate on their expenditure in designing, producing, and testing video games. It works by eligible companies claiming a deduction to reduce their profits – which will in turn reduce the amount of Corporation Tax payable, saving them considerable amounts of money. The deduction will be calculated by looking at the lower figure of either 80% of your total core expenditure, or the amount of core expenditure on goods or services provided from the EEA (European Economic Area).”
There’s even benefits for video games that make a loss – you can surrender some, or all of the loss for a payable tax credit at a rate of 25%. This is a generous amount of relief and is particularly beneficial to smaller game development companies that might not see a 100% success rate with every game they produce.
So how do you qualify for VGTR?
If you’re part of the UK video game market, your company can claim deductions if:
• You are certified as British by the British Film Institute
• Your product is intended for supply to the general public
• At least 25% of core expenditure is spent on goods or services from within the EEA – core expenditure refers to money spent on design, production and testing
To be eligible, your company must have an active involvement in game development, spending on qualifying costs like design, production and testing. You must also directly negotiate, contract and pay for goods, services and rights.
It’s worth noting that you cannot claim the tax if your company is involved in developing games for advertising, promotional, or gambling purposes.
The creative industry tax relief scheme offers some of the most considerable tax benefits of any tax incentive scheme in the UK, so it’s vital for anyone working in creative industries to find out if they are eligible.
Working with a corporation tax accountant can help those who think they might be eligible for tax relief under the CITR, but are not sure how to make a claim.