Are you planning on, or in the process of, developing a video game? Have you considered one of HMRC’s creative industry tax reliefs, Video Games Tax Relief – if not you could be missing out on additional tax relief of up to 20% of qualifying development costs!
Am I Eligible for Video Games Tax Relief?
Video Games Tax Relief (VGTR) is a corporation tax relief available to UK incorporated companies. Businesses which trade as either a sole trader or partnership and are taxed under Income Tax rules do not qualify.
For your game to be eligible for VGTR, it must be both certified by the British Film Institute (BFI) and intended for supply to the general public. The only instances where your game will be blocked for tax relief would be if it was for promotional purposes or involves gambling. You can apply for both interim and final certificates from the BFI, assuming your game meets the ‘cultural test’ and scores at least 16 out of 31 points to certify it as British.
As a company, you must be directly involved in the game planning and developing, and you must spend at least 25% of ‘core costs’ in the UK or European Economic Area (EEA).
How Much Can I Claim?
VGTR is a corporation tax relief that gives a company an additional deduction on qualifying expenditure. There are special rules that govern how your company’s accounting profits or losses are calculated for video game development companies – if you’re making a profit, this additional deduction reduces your profit and hence your corporation tax bill. If you’re making a loss, then some or all of this loss can be surrendered for a payable tax credit at a rate of 25%.
The additional deduction will be the lower of:
- 80% of your total core expenditure
- The amount of core expenditure on goods and services provided from the UK and EEA.
Core expenditure includes all design, production, and testing expenditure – it does not include expenses like marketing, concept design or post release maintenance.
Let’s look at an example…
Say that for your accounting period, your expenses are as follows:
Accountancy £ 5,000
Advertising and Marketing £ 3,000
Total Non-Core: £ 8,000
EEA Core Expenses:
Staff Wages £20,000
Subcontractors £ 9,000
Total EEA Core Expenses: £54,000
Non-EEA Core Expenses:
Development £ 8,000
Subcontractors £ 2,000
Total Non-EEA Core Expenses: £10,000
Total Core Expenses: £64,000
You company will be able to claim an extra deduction of the lower of:
- Your total EEA core expenditure – being £54,000
- 80% of your total core expenditure – being £64,000 x 80% = £51,200
Therefore, an extra £51,200 of company expenditure can be deducted from your profit, saving you corporation tax at 19% – a tax saving of £9,728.
Or alternatively, if your company is loss making, some or all of this deduction can be surrendered for a repayable tax credit of 25% – a tax refund of up to £12,800.
I Think I’m Eligible for Video Games Tax Relief – How Do I Make a Claim?
VGTR claims are made via your company’s CT600 Corporation Tax Return. We can assist you from start to finish, by ensuring your claim meets HMRC’s criteria and producing for you the supporting calculations and evidence to submit your claim to HMRC.
The benefit of VGTR is that interim claims can be made; so, all the while you are paying out and potentially making a loss prior to completion of the game, claims can be made by your company to turn a portion of these losses into payable cash credits – a clear cash flow advantage for your company!
If you are a client of Friend & Grant please call us to discuss your VGTR claim. If you are not a client of our firm but are looking for advisors who specialise in dealing with tech firms then why not find out more about how we can help you by visiting our digital and tech page or give us a call to arrange a discovery meeting.
The content in this blog is correct as at 1 August 2022. See terms and conditions.