Are you developing video games? You may qualify for tax relief
Video Games Tax Relief (VGTR) is a government scheme which allows corporate video game developers to claim an additional tax relief.
What qualifies as a video game?
An electronic game which is played through the following devices:
- Television or monitor;
- Mobile phone or tablets;
- Portable games machine.
The ‘video game’ in this context includes the development of the software, audio content, and graphics which comprise the game and provide the entertainment value to the player.
A ‘video game’ for these purposes must give players some direct control over the actions and events of the game (i.e. it cannot be a merely passive experience). As a consequence of this ‘control’ element the outcome of the game should not be certain and should be at least somewhat contingent on the player’s own actions.
A video game is eligible for VGTR if it meets all of the following conditions:
- The video game must be certified as British by the British Film Institute;
- It is intended for supply to the general public; and
- At least 25% of core expenditure must be incurred on goods or services provided from within the European Economic Area (EEA).
Cultural test (how to qualify as British)
In order to qualify for VGTR, all video games must pass a cultural test and be certified as British by the British Film Institute (BFI).
To apply for certification, you need to complete an online application form.
If the application is approved, the BFI will issue:
- An interim certificate for uncompleted work; or
- A final certificate when production has finished.
What does not qualify as a ‘video game’?
The purchase or development of hardware which runs video games are not included for these purposes.
Please also note that VGTR cannot be claimed if the game was produced for advertising, promotional or gambling purposes.
What costs qualify as core expenditure?
Eligible costs include those spent on development of the product i.e. designing, producing and testing the game and includes any overhead costs.
Please note that costs incurred in designing the initial concept of the game or maintaining it once completed (e.g. software patches) do not classify as ‘core expenditure.’
The claimant party must:
- Be actively engaged in the planning and decisionmaking process; and
- Directly negotiate, contract, and pay for rights, goods and services.
Calculating the relief
Assuming these conditions are met, an additional deduction can be claimed in the company’s tax return.
This additional deduction should be calculated as the lesser of:
- 80% of its total core expenditure; or
- The amount of core expenditure on goods or services that are provided from the EEA.
Where the additional deduction generates a taxable loss for the company, some or all of the loss can be surrendered or a payable tax credit at a rate of 25%.
How to make the claim
The claim should be supported in the tax return with:
- A British cultural certificate from the BFI;
- Statements of the amount of core expenditure, split by EEA and non-EEA expenditure; and
- A breakdown of expenditure by category.
Once the game is completed, the final certificate provided by the BFI must be sent to HMRC.
When must a claim be made by?
The deadline to submit a VGTR claim is up to two years from the end of the relevant accounting period. However, HMRC have discretion to accept late claims if there are exceptional circumstances that meant it could not be filed on time.
For more information
For more information or to find out whether you qualify for this tax relief, please contact a member of our tax advisory team: