Video Games Tax Relief (VGTR)
"Our accountant struggled with VGTR so we engaged Graham and his company. Graham prepared all the necessary computations and submitted the claim on our behalf. This was paid by HMRC without question and in an amount in excess of what we had previously expected. We are delighted and cannot recommend Graham or his company highly enough"
Ashley Stancill, Director at HyperSloth Games
What is VGTR?
Video Games Tax Relief commenced on the 1st April 2014 and is available to video games production companies within the charge to Corporation Tax.
Subject to the company and the video game production meeting the qualifying conditions as set out in the legislation in Finance Act 2013 and Finance Act 2014 (see links).
How does VGTR work?
VGTR works by enhancing expenditure incurred in the development process and creates an additional deduction to be set against the profit or, where it creates or extends a loss, allows that loss to be surrendered to HMRC for a payable tax credit thus providing the company with either a reduction in their corporation tax liability or a repayable tax credit.
Who qualifies?
Video Games Development Companies (VGDCs) who produce qualifying video games will qualify.
As this is a Corporation Tax relief, sole traders or partnerships which are taxed under Income Tax rules do not qualify.
To qualify as the VGDC it must:
- be incorporated in the UK or have a UK permanent establishment that falls within the charge to UK corporation tax.
- be responsible for designing producing and testing the video game
- be actively engaged in the production planning and decision making throughout the process
- directly negotiate, contract and pay for rights, goods and services in relation to the video game
How does a video game qualify?
A video game qualifies if it is:
- intended for supply to the general public
- has been certified as a British video game by the BFI
- Not less than 25% of the total core expenditure must be European Economic Area (EEA) expenditure.
What is EEA expenditure?
EEA refers to the European Economic Area which includes all of the EU countries as well as Iceland, Liechtenstein and Norway.
EEA expenditure is any expenditure incurred on goods or services provided from within the EEA.
What is the BFI Cultural Test?
In order for a video game (or film, TV programme or animation for that matter) to qualify for the tax relief, it must first be certified as culturally British.
The video game achieves certification by achieving a minimum of 16 points from a possible 31 available covering the following sections:
- Cultural content (16 points available)
- Cultural contribution (4 points available)
- Cultural hubs (3 points available)
- Personnel (8 points available)
Applications for certification are made to the BFI Certification Unit.
Whilst the team at the BFI are universally lovely and helpful, the process can be a little clunky.
Ideally, a game would achieve the 16 points needed in Sections A and B alone, which will save the time and cost of obtaining an accountant's report.
Which expenditure qualifies for enhancement?
VGTR is only available on core expenditure that is European Economic Area expenditure. Core expenditure is an expenditure that is incurred on:
- designing
- producing and
- testing the game.
Not all expenditure is core expenditure.
Expenditure that is not core expenditure is referred to as non-core expenditure.
Non-core expenditure includes expenditure on:
- original concept design
- debugging
- post-release maintenance
- financing
- marketing
How is VGTR claimed?
VGTR is claimed through the Company Tax system which means that claims must be made within a Company Tax Return or an amendment to a Company Tax Return.
Claims must include computations in respect of all qualifying productions and detail the income received and the expenditure incurred.
The expenditure should be split between core and non-core and information should be provided of any apportionments used.
As specialists in Video Games Tax Relief, we are here to help you achieve the maximum benefit available whilst making the process as simple as possible.
To download our factsheet on Video Games Relief – click here