What is Video Games Tax Relief (VGTR)?
Plus Accounting are experts in games accounting and finance. In this guest blog they share an intro to VGTR
We all know that the impact of Covid-19 on the economy has been considerable. It has affected some industries much more than others. From the feedback from my clients, it appears the video games industry has been more fortunate than some. Those working on existing projects started or planned to start pre-lockdown and already working remotely, have had a few work-related issues.
This does not mean the industry has and will remain unaffected. A painful recession, nervous investors, high unemployment and low consumer confidence are all likely to create challenges ahead, which may impede profits and cash-flow over the next year or two at least.
A very much underutilised tax relief which should not be overlooked and is specifically targeted at UK video games developers is known as Video Games Tax Relief (VGTR). VGTR can cut the costs of production significantly.
VGTR was introduced in April 2014 and is expected to be around for years to come. This relief enables developers to obtain an additional deduction of qualifying expenditure against their taxable profits providing corporation tax relief. Where the deduction creates a loss, this can be surrendered for a repayable tax credit.
This relief can offer a significant cashflow boost to developers. However, it can sometimes take time to obtain the relief, because the claims are made via the company tax return, which follows the end of the accounting year and must then be processed by HM Revenue & Customs. Developers can look to bring forward the cashflow injection by obtaining loan finance against the expected tax relief.
If you are serious about your finances and want to ensure the long-term success of your business, make sure you consider your eligibility to claim VGTR. You can claim VGTR up to 2 years after a qualifying accounting period.
Does your video game qualify for tax relief?
Your company qualifies for and can claim creative industry tax reliefs if it is:
- Liable to Corporation Tax
- Directly involved in the production and development of video games
Your company will be entitled to claim VGTR if the video game is British and:
- the video game is intended for supply, rather than for a marketing tool, for example
- at least 25% of core expenditure is incurred on goods or services that are provided from within the European Economic Area (EEA)
If your company qualifies to claim VGTR your company is also entitled to:
- an additional deduction in computing its taxable profits
- where that additional deduction results in a loss, to surrender losses for a payable tax credit
The devices that are eligible for Video Games Tax relief include;
- Video console games
- Games for PCs
- Games for mobile devices such as smartphones and tablets.
The ‘Cultural Test’
To qualify for the creative industry tax reliefs all video games must pass a cultural test with the British Film Institute (BFI), certifying that the production is a British video game.
The BFI will be satisfied with the video game if it achieves 16 points from a possible 31 in the test. The test is broken down into these four sections;
- Cultural content (up to 16 points).
- Cultural contribution (up to 4 points).
- Cultural hubs (up to 3 points).
- Cultural practitioners (up to 8 points).
Applications can still be sent if the game is under development and a final certificate will be made available once completed. The BFI will then review the completed game before issuing a final certificate.
What information do you need to start a Video Games Tax Relief claim?
- Confirmation of the start date and end date of the development of each video game subject to a VGTR claim.
- A copy of the interim or final certificate issued by the British Film Institute for each video game under
- development during the accounting period, which confirms a game is culturally British.
- Details of estimated and actual income for each video game under development, which is subject to a
- VGTR claim.
- Details of estimated and actual expenditure incurred on the development of each game.