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The UK video game industry has experienced significant growth in recent years, with game development companies contributing billions in revenue and providing employment for thousands of skilled professionals. To support this burgeoning sector, HMRC introduced the Video Games Tax Relief (VGTR), a scheme designed to provide financial incentives for UK-based video game developers. The relief aims to encourage innovation, competitiveness, and investment in the UK gaming industry.
Overview of Video Game Development Tax Relief by HMRC
The VGTR is part of the UK’s broader system of Creative Industries Tax Reliefs, which also includes support for film production, animation, and high-end television. Introduced in April 2014, the relief offers corporation tax relief for game production companies involved in the development of British video games.
Eligibility Criteria
To qualify for the VGTR, video game development companies must meet specific criteria, including:
- Being a UK-based company responsible for the development, production, and design of the video game.
- Intending to supply the game to the general public.
- Passing the cultural test and obtaining certification from the British Film Institute (BFI) as a British video game.
- Incurring at least 25% of the core expenditure on goods and services provided within the European Economic Area (EEA).
Recent Changes in the Relief
As part of the Spring Budget 2023, the UK Government announced several changes to the VGTR, which will be effective from 1 January 2024. These changes include:
- A new headline tax credit rate of 34% applied to qualifying expenditure.
- Restricting qualifying expenditure to spending on UK goods and services.
- Removing the subcontractor cap of £1 million.
These changes will become mandatory after 1 April 2027, following a transition period.
Benefits of VGTR
The primary benefit of the VGTR is corporation tax relief, which can be claimed on qualifying expenditure incurred during the development of the video game. This relief is calculated based on the company’s core expenditure, which includes costs related to designing, producing, and testing the game. The VGTR allows companies to claim:
- An enhanced deduction in computing their taxable profits, which can reduce their corporation tax liability.
- A repayable tax credit if the company makes a loss after the enhanced deduction. The tax credit is calculated at a rate of 25% for up to 80% of the company’s core expenditure.
Impact on the UK Video Game Industry
The VGTR has had a substantial impact on the UK video game industry, helping both large and small developers compete globally. By providing financial support, the scheme enables developers to invest in advanced technology, expand their workforce, and create innovative, high-quality games. As a result, the UK gaming industry has attracted more investment and solidified its position as a leading hub for video game development.
Conclusion
The Video Game Development Tax Relief by HMRC demonstrates the UK Government’s commitment to supporting the growth and success of the video game industry. By providing tax incentives to eligible companies, the VGTR fosters innovation and competitiveness in this rapidly evolving sector. The relief not only benefits the gaming industry but also has a positive impact on the wider UK economy, generating jobs and encouraging investments in new technologies. With the announced changes coming into effect in 2024, the support for the UK video game industry is expected to continue growing.
If you need help regaring Video Games Tax Relief , please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.