What is Video Games Tax Relief (VGTR)?
The games market has seen exponential growth year on year and was worth £7.82bn to the UK economy in 2023. That is why the government rewards video game developers with valuable tax deductions via the Video Games Tax Relief (VGTR) scheme.
The government’s Video Games Tax Relief (VGTR) allows UK game developers to claim a tax deduction of up to 20% on eligible costs or a tax credit if the company makes a loss. To qualify, the video game must be certified by the BFI (British Film Institute), and 25% of the project’s core expenditure must have been made within the EEA.
Read on to find out more about how video games tax relief works and how Approved Accounting can help you simplify the process and maximise your claim.
Who is eligible for VGTR?
In order to claim video game tax relief, your company must qualify as a Video Game Development Company (VDGC). That means it must have sole responsibility for the design, production, and testing of the video game, as well as the planning and decision-making throughout the process.
The VDGC should also negotiate rights, goods, and services related to the video game. As long as the above criteria are met, the VDGC may use specialist contractors. For more detailed guidance on the legal requirements of a VDGC, see HMRC’s Video Games Development Company Manual.
If you qualify as the VDGC, then you must adhere to other conditions in order to claim tax relief:
- Your video game must be available to the general public upon completion
- Your video game must pass a cultural test and qualify as ‘British’, certified by the British Film Institute (see below)
- At least 25% of the core expenditure on the game’s design, production, and testing must be on goods or services sourced within the European Economic Area (EEA).
How much is VGTR worth?
The VGTR scheme currently allows games developers to claim an additional tax deduction of up to 20% on their core production costs based on the lower of:
- the total expenditure of the project within the EEA
- 80% of the core expenditure
If the company is making a loss, then some or all of that loss can be surrendered as a payable tax credit.
For example, a VGDC develops a new game at a cost of £500,000. 75% of that has been identified as core expenditure within the EEA. The company is making a profit, so can apply for a tax deduction on the total eligible costs incurred within the EEA or 80% of the total expenditure, whichever is the lowest. In this case, the lowest is the EEA expenditure, so the tax deduction is £375,000.
Which platforms are eligible for Video Games Tax Relief?
You can apply for VGTR regardless of whether your game is intended for tablets, smartphones, games consoles, or PCs.
Do all types of video games qualify for VGTR?
Certain games are excluded from video game tax relief—if your game is produced for the purpose of promotion, advertising, or gambling, it is not eligible.
What is the BFI cultural test for video games?
In order for your development project to qualify for tax relief, your game must be certified as ‘British’ by The British Film Institute (BFI) on behalf of the Department for Digital, Culture, Media and Sport. This involves passing a cultural test comprised of four sections. It is point-based and measures:
- cultural content – the degree to which the location, characters, story and dialogue are relevant to UK/EEA citizens
- cultural contribution – the degree to which the game communicates, develops and enhances British culture
- cultural hubs – the degree to which core expenditure was within the UK
- cultural practitioners – the degree to which UK/EEA citizens worked on the project in various roles
Qualifying games must score 16 points out of a possible 31. For more information, visit the BFI website.
What qualifies as core expenditure for VGTR?
In the context of VGTR, ‘core expenditure’ is defined as costs relating to the designing, producing, and testing phase, including subcontractor costs (up to a value of £1m).
‘Core expenditure’ does not begin in the initial concept phase but once design, production, and testing are underway. It also excludes any costs incurred after the completion of the game, such as fixing bugs or performing maintenance, and marketing costs.
How do I claim VGTR?
Video game tax relief must be claimed as part of your company’s corporation tax return to HMRC. You must provide a profit and loss sheet for each game, along with a detailed breakdown of core expenditure split by EEA and non-EEA spend.
You must then calculate the additional deduction due, i.e. the reduction on your taxable profit or the tax credit due if your company is making a loss. Here is when the advice of a good accountant can save you time and effort by taking care of these calculations for you and submitting your tax return on your behalf.
You must include your certificate from the BFI along with the relevant financial documents. If your video game is still in development, you are permitted to send an interim certificate as long as you submit a final certificate when the game is finished.
Approved Accounting can help maximise your Video Games Tax Relief claim
Approved Accounting can calculate your VGTR claim and submit your corporation tax return, saving you valuable time and effort. As tax experts, we can also guarantee that your claim will be 100% accurate and submitted on time, so you can sleep easy at night.
What’s more, with our knowledge and expertise, we can help you maximise your claim to get the tax relief or credit you deserve. Why not contact us to chat about our services, we’d love to hear from you.
