Video Games Tax Relief & Video Games Expenditure Credit

Video Games Tax Relief and the Video Games Expenditure Credit

For years, Video Games Tax Relief (VGTR) has been a pillar for the UK video games sector, supporting growth, inward investment, and job creation, and driving a strong and thriving video games industry.

With the likes of France, Germany and Ireland offering more generous tax incentives to video game development companies, the UK Government had come under pressure to reform VGTR to mitigate the risk of weakening one of the pillars of the modern UK economy.

As part of Spring Budget 2023, the Government announced that VGTR will be phased out and replaced with the Video Games Expenditure Credit (VGEC). The VGEC has been available for companies to claim from 1 January 2024.  Although the new credit is slightly more generous than the existing VGTR, and much of the existing rules are being maintained, there are some other important differences which, if not considered, could leave studios worse off.  

Our games team can help you navigate the complexities and ensure that you are claiming the correct relief for your specific studio / development circumstances during the sunset period for VGTR, which runs to 31 March 2027.

Our team can help by helping you in considering the following:

• Which relief is available in respect of the game under development. For example, if development of the game starts on or after 1 April 2025, you will have no choice and will be claiming under VGEC.   
• The level and nature of costs that you expect to incur in developing the game.  For example, if you expect to incur well in excess of £1m of subcontractor costs in developing the game, then VGEC may well provide the higher level of relief.  However, if those costs do not qualify as UK expenditure, then this might not be the case.
• The pricing associated with any connected party transactions.  The legislation specifically excludes connected party profit, but transactions priced on an arm’s length basis can be exempt from this.  We can help you with these complex rules including bringing in our Transfer Pricing specialists if required.
• Modelling the relief available in different circumstances such that you can proactively structure your development team and outsourcing structures and cash flow the potential relief.

In addition, our team can assist with the preparation and submission of your VGTR or VGEC claim including:

• Confirming that the gateway conditions, necessary in order for the company to claim VGTR/VGEC in respect of the development of the video games, are satisfied.  This can include assisting with the cultural test application to the BFI and associated accountant’s report where necessary.
• Calculate the profit / loss of the separate video game trade for the relevant period.
• Calculate the additional deductions/expenditure credits available, considering the relevant core and EEA/UK expenditure.  Where there is a surrender-able loss available, we will calculate this and consider with you the best use of the relief.  
• Incorporate the claim into the corporation tax computation and return for the period.
• Prepare the Additional Information Form required of all VGTR/VGEC claims made on or after 1 April 2024.
• Prepare detailed working papers to allow you to tie back the costs claimed for to the relevant financial statements.  
• Liaise with our financial reporting advisory and corporation tax specialists to ensure that the company is claiming the maximum relief to which it is entitled.

VGTR and VGEC are designed to support and enhance the great game development work taking place across the UK.  Despite this, the rules can be complex and the sunset period during which either relief may be available only adds to this complexity.  Make sure that you don’t miss out by taking proactive advice in this area.