Creative and Video Game Industry Tax Relief
Creative industry tax reliefs are a group of corporation tax reliefs that allow qualifying companies to claim a larger deduction, or in some circumstances claim a payable tax credit when calculating their taxable profits. The reliefs work by increasing the amount of allowable expenditure, which may be surrendered in exchange for a payable tax credit if the company makes a loss.
Additional relief is available for companies incurring expenditure on: (i) qualifying film production; (ii) animation and high-end television production (including children’s television programmes); (iii) video-games development; (iv) theatrical productions and (v) production of orchestral concerts.
The creative industry tax reliefs are all subject to a number of conditions (in particular, that the film, animation, high-end television programme or game must be certified as culturally British to qualify).
Video games tax relief
Video Games Tax Relief, known as VGTR, is a tax relief incentive for creative industries, all funded by the UK government. VGTR is there to support UK game developers to grow and expand, but offering a tax rebate against what cash is spent on the testing, production, and design of new games.
How much can be claimed?
Video Games Tax Relief can be worth up to 20% of the production costs of a game. There are two things that video game developers claim tax relief on, whichever is the lower one. This is either 80% of the total expenditure, or the actual expenditure incurred.
Another point to note is that if a game is profitable, then the VGTR is something that can also be used as a way to reduce the video game company’s corporation tax bill. If the video game goes on to make a loss, then any VGTR claimants can get a cash payment back from HMRC, which is at a rate of 25%.
How do you qualify for this tax relief?
In order to qualify for this form of tax relief, funded by the UK government, then there are some criteria that you need to meet. The criteria is as follows:
- Your creative or video game industry business needs to be responsible for the majority of designing, planning, testing, developing, and production of a game. As a result, the company needs to be known as a video games development company. If you mainly outsource to others to test, design, and produce the games, then you wouldn’t meet the criteria to qualify.
- The game itself must be created with the intent to release for commercial gain. It shouldn’t be a game that is solely created for advertising, gambling, or promotional purposes.
- The video game is one that should count as being British, as defined by the British Film Institute, through their video games cultural test. If you are British as the creator but are living and working abroad, then you’re unlikely to qualify as it is something that is funded by the Uk government.
- The final criteria is that at least a quarter of the video game production costs need to have been accrued in the EEA (European Economic Area).
If you can see that you meet the criteria as outlined above, and your game can be played on selected devices, then you are likely to be entitled to the tax relief. The devices that the game needs to be able to be played on are:
- Smartphones and mobile devices like tablets
- Video game consoles and portable game devices
What are the key benefits of creative and video game industry tax relief?
One of the top benefits, as has been mentioned above, is that game developers can get up to 20% of their core game development and production costs back. But there are still several other benefits that are worth looking into if you are a business in the creative and video game industry.
The creative and video game industries are very competitive. Video game tax relief will help you to stay competitive as it can cut the costs of your development. As a result, you can charge less for your games, which will be a winner with consumers. At the same time, you can still invest your money in top-quality content, varied games, and more into your marketing.
Receive a payout quickly
As long as you meet the criteria and all goes to plan, you will be able to receive your tax relief by no more than ten weeks after filing the claim (though it is usually quicker, around four weeks). This is something that is going to be much simpler than trying to get investment from a third-party if more funds are required, but it will also be much quicker than trying to get outside investment.
Have full control
If you need more money for your creative or video game industry projects, then securing investment from a third-party can come with some strings attached, such as a certain amount of equity or a certain amount that needs to be repaid by a certain date. With the industry tax relief, you will be able to remain in full control of your company, with all voting rights, but still get the additional funding. That means all profits will be the company’s and not have to be paid back to anyone else.
Starting a company can come with risks, and when you’re starting a company that develops video games, then it can come with even more risks. The tax relief for the creative and video game industries helps to offset some of the risk. The reason being, you can get a tax rebate against the costs that you incur during the production and development.
What is the process for creative and video games tax relief claims?
In order to claim the video games tax relief, then it is a pretty straightforward process. It can be claimed as part of your company tax return that gets filed with the HMRC. in order to file the claim, you need to have a registered company, and have some documents to prove it. The documents you will need are:
- A cultural certificate from the British Film Institute to show that the game you are developing counts as being British
- Bank statements that show how much you have spent on the development of the game. Ideally, this should be put into categories, showing where and on what, the money was spent on
- A breakdown on the profit and loss for each video game that has been developed and produced. If you are claiming for more than one game, then they need to all be filed separately. When you know if the game will leave you in profit or making a loss, you will know if the claim needs to be used to reduce the tax bill, or if the claim should go down as a loss in order for cash repayment
The HMRC does have a way of calculating profit and loss that is taxable, for creative and video game industry companies. This should be used as there are some restrictions for working out losses that can be used, but it will depend on if the trade for the video game has finished.