Video Games Tax Relief

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Video Games Tax Relief

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This information is offered on the basis that it is a general guide only and not a substitute for legal advice.

We cannot accept any responsibility for any liabilities of any kind incurred in reliance on this information.

Video Games Tax Relief Companies that develop video games in the UK, are able to make savings on their corporation tax bill through the Video Games Tax Relief (the “Relief�). The Relief has been available since April 2014 and TIGA, the independent games developers association, recently reported that between October 2015 and September 2016 the Relief supported the development and creation of 167 new games in the UK. Figures released by the British Film Institute also show that budgets for games that are able to tax advantage of the Relief increased tenfold in the same period.

The Relief can therefore be highly beneficial and we summarise it as follows.

John Egan Associate Partner | Commercial john.egan@laytons.com +44 (0)20 7842 8000

Kathryn Beasley Solicitor | Corporate kathryn.beasley@laytons.com +44 (0)20 7842 8000

Video Games Tax Relief | December 2016

What are the benefits?

Who can claim the Relief?

If a games development company has made a profit, the Relief allows the company to make a deduction from the profits on which it will have to pay corporation tax, thus reducing its corporation tax bill. The deduction is the lesser of:

The Relief is available to companies that design, produce or test British video games.

The legislation does not limit a “video game” to a specific format so, provided the other requirements are met, the Relief should be available to all forms of video games - including not only those on physical discs but those that are download

1. total core expenditure incurred in relation to the game in the EEA 2. 80% of the total core expenditure in relation to the game .

only, and whether they by available on traditional consoles or smart devices, and whether they be paid for or freemium/ free to play games. However, please see the requirement below that the game’s sole purpose must not be gambling, advertising or promotion.

Alternatively, if the company makes a loss during the accounting year in which the Relief is claimed, it may

The company claiming the Relief must be actively engaged

surrender its losses for a 25% payable tax credit.

in the planning or decision-making of the design, production or testing of the game, and must also be directly involved in

There is no minimum or maximum amount of expenditure

negotiating, contracting for or paying for rights, goods and

that can qualify for the Relief, save that the amount of sub-

services for the game.

contract costs that can be claimed is capped at £1m.

An important limitation is that the legislation only allows If a company makes a claim for the Relief, it will no longer be

one development company to claim the Relief per game. If

able to claim Research & Development Relief for the same

there is more than one company involved on a game that

accounting period; the company therefore has to consider

would otherwise be entitled to the Relief, the company that is

what Relief is more beneficial to it. The company should

more directly involved in the qualifying activities listed in the

still be able to claim patent box relief, but advice should be

paragraph above will be the company entitled to the Relief.

sought.

HMRC guidance on the rules for claiming the Relief and the 25% tax credit can be found in the Video Games Development Company Manual.

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Video Games Tax Relief | December 2016

What are the requirements?

The Relief is available in relation to games:

We recommend that the criteria for which points are awarded are considered (and applications to the BFI made) at an early

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•

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certified by the Secretary of State as British intended for supply to the general public where a minimum of 25% of “core expenditure” is incurred or goods and services provided from within the European Economic Area

stage of the development so that they can be incorporated and allow the Relief to be claimed. Note for example, points are awarded if some of the game’s characters are depicted as being from the UK or EEA state (or where their nationality/ species cannot be determined). The application form for certification and guidance on the cultural test can be found on the BFI website.

The Relief applies to electronic games, and only covers work on the software and other electronically-stored content, not hardware. The Relief cannot be claimed in relation to games that are produced solely or mainly for the purposes of gambling, advertising or promotion. However, the legislation allows the Relief to be applied where the game includes some

“Core expenditure” is defined as being expenditure on

advertising, it just does not do so where it is the game’s sole

design, production and testing of video game and includes

or main purpose.

expenditure on soundtracks and voice recordings – however, it excludes expenditure on the initial concept of the game

HMRC’s guidance gives the example of a free video game

or on a completed game (although it may be possible to

designed to promote a film or animation, and states that this

claim for expenditure on a new “version” of a game and post

would be denied the Relief. The guidance goes on to state

release expenditure that does not relate to de-bugging or

that the legislation is not intended to prohibit advertising

maintaining the completed game).

being carried in games, and recognises that it is common for mobile phone apps to offer a free version which carries

In order to be certified as a “British” game by the Secretary

advertising and one which may be purchased. Provided that

of State, the game must satisfy the “cultural test” set by the

the other requirements are met, the former app should not be

British Film Institute. This is a points based test, and under the

denied the Relief.

current system 16 points are needed.

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Video Games Tax Relief | December 2016

How can the Relief be claimed?

The Relief must be claimed through the corporation tax self-assessment regime.

If you have any queries on whether the Relief applies to you, and how to claim it, please do not hesitate to contact us.

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