If you’ve made it here, you’re most likely a UK game developer looking to learn more about Video Game Tax Relief (VGTR). After all, you could be eligible to claim a tax rebate of up to 20%! Read on to learn more about this attractive UK government incentive, what you may be eligible for, and how to claim it.
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Video Game Tax Relief is a UK Government incentive for UK game developers. VGTR can enable developers to receive a tax rebate worth upwards of 20% on a video game’s production and design costs. It should be noted that this is for new video games only.
Video games that demonstrate British creativity want to be celebrated and rewarded by the UK government. As you can see, the government are looking to incentivise project leaders to have their games produced on British soil.
According to the British Film Institute, Games produced in the UK will need to be qualified as British according to the ‘Cultural Test for Film Video Games’. The Cultural Test is a points-based test, requiring projects to score at least 16/31 points to succeed. There are four parts to the British Film Institute Cultural Test:
Companies must apply for the Interim Certificate in order to claim VGTR before applying for the final certificate. This British Video Game certificate can be applied for either before or during the development stage. Companies must submit the final application once the game is finished and ready for release. In some parts of the cultural test, an Accountant’s report is required for the final certificate. Tax Bite can prepare the report to comply with Section 1212 of the Companies Act 2006.
Speak To Our RD Tax SpecialistsOnly a company in possession of this British Cultural certificate can be recognised as eligible for VGTR. This can be done via an online application form, which we can help with. If successful, certificates will be issued by the Department for Digital Culture Media & Sport (DCMS).
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Companies should note that Video Games Tax Relief is a UK Corporation Tax relief. This means companies that pay corporation tax are the only eligible entities. Therefore, LLPs, partnerships, sole traders and individuals cannot claim Video Games Tax Relief.
Sometimes, corporate partners in a Partnership or Limited Liability Partnerships can be eligible for VGTR.
VGTR is eligible for one single company per video game. However, suppose more than one company is actively engaged in the design, production, and testing of a video game. In that case, HMRC will decide and confirm the company that has been most directly engaged in creative input, conceptual development, audio production, and the overall process to award VGTR.
The company handling the negotiation, execution and planning of the contracts and investment into the rights, goods, and services of the new game itself is also considered during this process.
Worth up to 20% of the production costs of a video game, VGTR is undoubtedly something worth investigating further. Companies can make VGTR claims on either 80% of the total core expenditure or the EEA core expenditure incurred – whichever happens to be lower.
Profitable video games can also use the tax relief to reduce their Corporation Tax bill. Should the game incur a loss on UK expenditure, companies can qualify for a 25% cash payment straight from HMRC.
The following list outlines the criteria companies must meet to qualify for VGTR:
Did you meet the above VGTR criteria? Great! The next step is to confirm that your game can be played on either of the devices mentioned below in order to be considered for Video Games Tax Relief (VGTR):
If your new video game is designed to be played on any of the above devices, you could indeed be eligible for VGTR.
Aside from the rebate of up to 20% incurred video game production costs, Video Games Tax Relief also provides four fantastic benefits outlined in the following paragraphs.
With the video games industry being overly competitive, development costs are cut with the help of VGTR funding. This means you can charge companies a lower rate for your video game title, all while investing more of your capital in variety, quality, and of course, one of the most important aspects these days; Marketing.
Are you wondering just how fast your company could receive Video Games Tax Relief? Believe it or not, the currently projected timespan of receiving the rebate is within four to ten weeks of a claim being made. This means it’s considerably faster and more straightforward than attempting to gain investment from external sources.
We know how important it is for business owners to remain in control, so it should come as a welcome benefit that VGTR funding investments do not restrict your voting rights. Moreover, the increased funding will mean you will likely receive a more significant portion of your company’s overall profits.
Being in an industry with a significant amount of risk, a major benefit of VGTR for a video games development company is that some of that risk is reduced due to the offset it provides against production costs.
Any Video Games Development Companies that qualify for VGTR can claim an additional deduction in computing taxable profits. However, should that deduction result in a loss, this can result in a payable tax credit equal to up to 25%.
Payable tax credit or any additional deduction is calculated based on European core expenditure of up to 80% of the total core expenditure. Core expenditure is categorised as the costs incurred through designing, producing, and testing the video game.
VGTR can only be claimed within a CT600 Company Tax Return through HMRC. In addition, registered companies must provide the documents specified below:
At Tax Bite Accountancy, we have a specialised VGTR team to help registered companies make a VGTR claim. Contact us for more information on how we can simplify the process for you.
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Any games that are developed for the sole purpose of advertising or promotional purposes are not eligible for relief. In addition, as mentioned previously, games in the gambling niche do not qualify for this tax credit.
There are, of course, some minor exceptions, such as advertising within apps for mobile. Free mobile apps will make their profit through ads and offer users the chance to upgrade to ad-free versions for a fee. Promotional, ineligible games are identified as those with the sole intention of promoting products within the game itself.
The most crucial factor to be aware of concerning this question is that as long as the game’s intention is to be supplied to the general public from the very beginning, the game can still qualify for the tax rebate/relief.
An interim certificate has to have been issued before a VGTR claim can be made. Once issued, VGTR claims can be made at the design stage, usually when the core expenditure begins.
It should be noted that there is a time limit for making a claim for payable credit, which is exactly one year from the start of the accounting period on file.
The relief allowable is dependent on whether the project is profitable or at a loss. As claims are made during the production phase, most of these pre-revenue cases are at a loss.
When companies work alongside large video game development companies, the income must be calculated in line with eligible expenditure incurred under the UK Generally Accepted Accounting Practices.
The maximum relief allowable is 80% of the actual EEA core expenditure; costs of goods and services provided must be incurred in the EAA. The UK’s tax rate is currently 19%, so relief for European subject matter is allowable at this rate. Losses are at a rate of 25% to the company.
A UK permanent establishment at a loss may be eligible for a payable cash tax credit at the rate of 25%. This is quite an attractive benefit for UK game developers compared to the current UK Corporation Tax rate of 19%.
As R&D and VGTR are state aids, companies can only claim one tax credit per game developed. However, it is possible for one company to claim R&D tax credit on one game or project and VGTR on other games.
It is worth noting that claims on expenses between games must not overlap.
First and foremost, should a company be eligible for an RDEC claim, this relief will take precedence regardless of VGTR eligibility. Companies with the choice of VGTR or R&D tax relief must make their choice with the knowledge that the same must be applied for the entire duration of the project or game.
As you can see, claiming Video Games Tax Relief can be quite an overwhelming process overall. Our specialised VGTR team are here to simplify the process. We’ve helped companies like yours to claim what is rightfully theirs without overcomplicating the process.
We look forward to talking with you soon.
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