11 April 2024

We have experience working with different game developers in the UK, so we understand how confusing tax relief for video games can be. Many studios we speak with struggle to figure out eligibility criteria, certification processes, and the complex calculations involved in claiming government incentives.

Many video game developers could be missing out on significant tax savings or even cash payments from HMRC. That’s where FI Group comes in. In this guide, we will walk you through the processes involved with Video Games Tax Relief (VGTR) – from qualifying for the scheme to maximising your claim.

By the end of the article, you’ll clearly understand how VGTR works, what costs you can claim, and how to successfully submit your application.

What is Video Games Tax Relief (VGTR)?

Video Games Tax Relief (VGTR) is a government incentive that exists to support the video game development industry in the UK. It allows qualifying companies to claim a payable tax credit worth up to 20% of their core production costs.

The main idea of VGTR is to encourage investment and growth within the sector by making game development more affordable. With reduced financial burden, game studios are more competitive on a global scale. .

 As for inclusion criteria, various video game genres qualify for the VGTR claim. Whether you’re developing an immersive single-player RPG, a multiplayer online battle arena, or a free-to-play mobile game, you could be eligible for this tax relief. The only stipulation is that qualifying games should be intended for commercial release to the general public. Games created solely for advertisement, promotion, or gambling purposes are excluded.

For profitable video games, tax credits can be used to reduce corporate tax bills. For loss-making titles, you can even receive a cash payment from HMRC at a rate of 25% of your qualifying expenditure. This can provide you with the needed funds to keep your development pipeline flowing.

Qualifying Criteria for VGTR

To claim VGTR, there are a few criteria your business needs to meet. 

Registration

First and foremost, your company must be registered in the UK as a video game development company (VGDC) and must be responsible for the majority of all planning, designing, developing, testing, and production.. This company must also be actively engaged in the decision-making process and directly negotiate and/or pay for the rights, goods, and services involved.

Important note: there can only be one VGDC per video game. If multiple companies are involved, the one most responsible for and engaged with qualifying activities will be designated as the VGDC.

Cultural Test

In addition to being the VGDC, your video game must pass the British cultural test, which is administered by the British Film Institute (BFI). This points-based assessment measures factors like setting, lead characters, subject matter, and dialogue to ensure the game possesses genuine British or European cultural content and significance.

You’ll need to score at least 16 out of the possible 31 points to be certified as a “British” video game and qualify for VGTR. Don’t worry though — the criteria are quite broad, and even games with fictional or international settings can often meet the requirements.Let’s take a look at how the cultural test is broken down into four main sections:

Cultural Content (16 points available)

This subsection looks at the setting of gameplay, the nationality/residence of the lead characters, the subject matter, and the language used. For example, you can earn points in the following scenarios: 

  • The game is set in the UK or another EEA country
  • The game has British or European lead characters
  • The game is based on British/European subject matter
  • The game uses mainly English in the dialog or one of the UK’s indigenous minority languages

Cultural Contribution (4 points available)

This subsection evaluates how the game demonstrates creativity, heritage, or cultural diversity from a British/European perspective. Elements that reflect national customs, use British landmarks, or incorporate diverse representation can earn up to 4 points.

Cultural Hubs (3 points available)

You can also score points for working in UK-based video game development facilities for key production activities like programming, design, audio recording, and more.

Personnel (8 points available)

Finally, the test considers the nationalities and residencies of the key creative talent involved, including the project leads, writers, composers, artists, and programmers.

Core Expenditure

The final key criterion is that at least 25% of your “core expenditure”- i.e., money spent on designing, producing, and testing the game – must be incurred within the European Economic Area (EEA). This helps ensure the tax relief is benefiting the UK and wider European game development ecosystem directly.

As previously stated, – some games are excluded from VGTR. Excluded games include any that are produced solely for advertising, promotional, or gambling purposes. As long as your project is intended for commercial release to the general public, claiming video games tax relief is a valid consideration.

Calculating VGTR

Calculating and Claiming VGTR

When it comes to VGTR, a key consideration is your “core expenditure” –  Money you spend directly on the designing, producing, and testing of your video game. This can include things like:

  • Salaries for your development team
  •  Animation and audio recording costs.
  • Payments to third-party contractors.

The amount of tax relief you’re eligible for through VGTR is calculated as 25% of your core EEA expenditure up to a maximum of 80%. So if allcore spending took place in the EEA, you could claim up to 20% of your total development budget.

It’s important to carefully track and categorise your expenses, as HMRC will want to see a detailed breakdown of expenditures when submitting your claim. Remember, certain costs like marketing, financing, and debugging a finished game won’t qualify.

The process of actually claiming VGTR involves a few steps:

  •  Apply to the BFI for an interim cultural certificate, which confirms that your game meets  British criteria before it’s completed. This allows you to start claiming relief as you go.
  • Once your game is finished,  get a final certificate from the BFI and incorporate the VGTR claim into your company tax return. HMRC will then either reduce your corporation tax bill or, if you’re loss-making, send you a cash payment.

 Keep in mind that you can’t claim both VGTR and the R&D tax relief on the same expenditure. So if parts of your game development qualify for R&D relief, you’ll need to decide which incentive will be more beneficial for your business.

Q/A section for VGTR

Q: Is there a minimum budget requirement to qualify for VGTR?

No, there  are no minimum expenditure thresholds needed to claim VGTR. As long as you meet the other eligibility criteria,  companies can claim the relief regardless of the total development budget.

Q: Can I claim VGTR on post-release content updates?

Yes, it may be possible to claim VGTR on additional content developed/released after the initial launch of your video game. As long as you demonstrate how this new content qualifies as further game production, it should be eligible for the relief.

Q: How does VGTR interact with the new Video Games Expenditure Credit (VGEC)?

The VGEC and VGTR incentives run parallel, so you have the choice of which one to apply for. Generally, the VGEC offers a higher credit rate of 34% compared to VGTR’s 20% – but the eligibility criteria and calculation methods differ, so the optimal choice will depend on the specifics of your project.

Q: Is VGTR affected by the company’s tax status (profitable vs. loss-making)?

No, VGTR is beneficial regardless of whether your video game is generating profits or losses. If your game makes a profit, you can use the tax credit to reduce your corporation tax bill. If it makes a loss, you can claim a payable cash credit from HMRC at a rate of 25%  for your qualifying expenditure.

Q: How long does the VGTR application process typically take?

The BFI aims to process VGTR cultural certificates within 28 days, provided the application is complete and no further information is required. The overall claim process through HMRC can take a bit longer, so it’s advisable to start your application early.

VGTR
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