Video Game TaxRelief (VGTR) is a tax relief incentive intended specifically for the creative media industry in the UK.
When approved forVGTR, game developers in the UK can use the tax rebate as funding for design, production, testing, and support of their ongoing game projects.
During the claiming process, game developers can potentially receive up to 20 percent of their core production costs.
For profitable games,VGTR can then be used as a means to minimise Corporation Taxes. In the event that a game loses money, recipients can receive a cash payment from HMRC at a rate of 25 percent.
To receive VGTR, there is a specified set of criteria that game developers must meet.
The criteria can be divided into two main parts necessary for claiming VGTR:
· The Cultural Test: A points-based test that measures the cultural value of a video game within the context of the UK.
· AdditionalCriteria: Other HM Revenue& Customs (HMRC) criteria that determine whether or not a game is bothUK-based and produced, as well as confirming the developers’ intention to release the game.
We will examine the cultural test more closely in a moment, but let us first look at what the additional criteria consist of.
To qualify for VGTR, game developers must:
1. Be a UK-based business responsible for the majority of the planning, development, and production of a game.
2. Spend at least 25 percent of production costs within the UK or EEA.
3. Show intention for commercial release of the game.
With this in mind, let’s move on to the larger component of qualification: The Cultural Test.
The first step of theCultural Test is applying for the test. The qualification for application is that there must be at least one video game development company (VGDC) that is “registered with Companies House and within the UK corporation tax net,” according to MMP Tax.
The British Film Institute – or BFI – is responsible for assessing applications and certifying VGDCs as having met the Cultural Test criteria to receive VGTR.
The Cultural Test is a points-based system in which game companies must achieve at least 16 of the available 31 points to pass. The points are broken into four sections:
· Cultural Content: Worth up to 16 points – this category measures how much of the game’s content, characters, and setting is relevant to the UK or Europe.
· Cultural Contribution: Worth up to 4 points – this category measures whether a game reflects British heritage.
· Cultural Hubs: Worth up to 3 points – this category measures how much of the game development funding is spent in the UK.
· Cultural Practitioners: Worth up to 8 points – this category measures what portion of the game development team (such as developers, artists, or programmers) are UK or EEA residents.
Cultural content is the heftiest section – and the most important, considering a company cannot pass the test without at least one point in the category. Likewise, a company could pass the test off this section alone, with no other points in the other three sections.
For the BFI to complete its assessment of a Cultural Test application, additional supporting documents must also be provided. These can be viewed on the BFI’s Cultural Test webpage, under the section “Supporting Documents.”
As part of an initiative to raise awareness surrounding VGTR, the BFI is spending more time focusing on outreach within the video game industry. In turn, more game companies are applying for VGTR than ever before.
One of the biggest advantages of VGTR is its impact on the British economy.
According to MCV/Develop, a total of £324m in tax relief had been awarded to roughly 1,110 claims by 2019, with claims being up 12.6 percent year-over-year. In turn, investment in British gaming content rose to £2.6bn.
As for companies who have received this tax relief, this funding has played a pivotal role in their project budgeting and planning. This is especially true when game companies pitch to investors, as it shows that a game project has solid funding routes to rely on.
VGTR is received through a Company Tax Return (CT600) filed with HMRC. To make a VGTR claim, the first part of the process is providing the following documentation to the HMRC:
1. A BFICultural Certificate
2. CoreExpenditure Statements (broken down by EEA and non-EEA spending)
3. Profit and loss accounts for each video game produced, reported as separate trades
Ultimately, the biggest barrier to receiving VGTR is getting past the Cultural Test. Thus, focusing on ensuring a game is optimised for this test before beginning the claiming process is key.
Aside from VGTR, there are other options for game developers within the UK to receive funding for their game projects.
For instance, the UK Games Fund is run by the UK Games Talent and FinanceCommunity Interest Company (UKGTF). Through this fund, game companies can receive grants of up to £25,000. As of today, the fund has supported more than100 game projects.
Additionally, theUKGTF’s Tranzfuser scheme also offers game development opportunities to UK graduates, acting as a launchpad for British residents pursuing a career in the industry.
If you are a game developer within the UK, both VGTR and the UK Games Fund are potentially viable options for supporting your project.
Here are some helpful links to get you started:
· For more information about VGTR and theCultural Test, visit the BFI’s website to learn more about the qualifying criteria.
· Visit the UKGames Fund website for more information on this fund.
· To learn more about the Tranzfuser scheme forUK graduates, visit the Tranzfuser website.