Video Games Tax Relief (VGTR) is a UK government initiative aimed at providing tax incentives to support the video game industry. The scheme is designed to encourage the development and growth of the UK's video game sector.

Under VGTR, qualifying companies can benefit from a reduction in their corporation tax liability or, if they are not yet profitable, they may be able to surrender losses for a payable tax credit, ie, cash. 

To qualify for VGTR, a video game must meet certain eligibility criteria, including the BFI’s cultural test. The cultural test is a set of criteria used to determine the cultural significance of a video game. Points are awarded for elements such as the storyline, characters, British settings and contributions to the UK economy. A minimum score is required for a game to be eligible for VGTR. The game must be intended for supply, not advertising or gambling.

In addition, the video game development company itself must also meet certain criteria. It should be liable to pay UK corporation tax, and it must be directly involved in the planning, designing, and production of the video game.   

1. Assess your eligibility: The first step is to assess your eligibility - please see the section above relating to eligibility. 

2. Apply to the BFI for certification: This involves filling out an application form (we can do this for you) and providing supporting documentation about the game (we can do this too, with your input). If the application is successful, you’ll receive an Interim or Final Certification from the BFI.

3. Your VGTR claim is prepared: When we prepare your claim, we’ll ensure this is completely compliant with the current tax legislation. 

4. Include in Tax Return: Include your VGTR claim in your Corporation Tax Return.

5. Submit your Tax Return: Submit your Corporation Tax Return for HMRC for processing.

6. Sit tight: After submitting your tax return with the VGTR claim, wait for HMRC to process it. HMRC might ask for more information, so you might need to provide further details or documentation. We’ll manage this part of the process for you.

7. Receive your benefit: If everything goes smoothly, you’ll receive either a reduction in your tax liability or a payable (cash) tax credit if your company is loss-making.

If your company is in an overall taxable loss position, then yes, you can surrender the loss for a payable tax credit, ie, cash.

If HMRC do not raise any queries or ask for further documentation, claims may be paid out within approximately 40 calendar days. If cashflow is tight, we can suggest lenders who will loan against your VGTR claim while you wait for the monies to be paid out.

Theoretically it is possible to claim both, but the two reliefs operate very differently and it’s complicated. If you happen to qualify for SME R&D relief and VGTR (which is generally only in very specific circumstances), you are not able to claim VGTR and R&D on the same project. However,  if you have multiple projects, it is possible to claim VGTR on some projects and R&D on other projects. You can’t claim R&D and VGTR tax relief on the same costs. Careful consideration and assessment of your projects and eligibility under R&D and VGTR individually would need to be made.

The new Video Games Expenditure Credit (VGEC) is set to replace the Video Games Tax Relief (VGTR) and introduces several key changes to the UK video games industry's tax relief structure. 

Here’s a summary of the key changes and impacts on games studios:

1. Transition to VGEC: VGEC will phase in from January 1, 2024, with all new games developed from April 1, 2025 needing to claim under VGEC. VGTR will officially end on April 1, 2027, marking a complete transition to the new system by that date.

2. Tax Credit Rates: VGEC offers a headline credit rate of 34%, which, at face value, appears more generous than VGTR's current rate. However, after applying the current corporation tax rate (25%), the effective benefit rate to companies is closer to 25.5%. This represents a modest increase from the effective rate under VGTR.

3. Expenditure Eligibility: A significant shift with VGEC is focusing on UK-based expenditures. Unlike VGTR, which allowed for EEA expenditure, VGEC will only cover costs for goods and services "used or consumed" within the UK. This change aims to direct support more closely towards domestic investments.

4. Subcontracting Cap Removal: VGEC removes the subcontracting cap that VGTR had in place, allowing companies to claim the credit on qualifying expenses incurred through subcontractors without any limit. This change is designed to encourage companies to seek additional development support without worrying about hitting a monetary threshold.

5. Impact on the Industry: The changes aim to modernise and boost support for the UK's video game industry by focusing on domestic growth and investments. The removal of the subcontracting cap and the requirement for expenditures to be UK-based are expected to encourage more localised development efforts.

VGEC represents a modest increase in tax relief for video game companies, aligning with global changes to the international tax system and the UK's post-Brexit adjustments. 

There’s clearly a lot to consider here. Adapting early and planning for these changes will be key to maximising the benefits of VGEC. We can help you navigate this.

We prepare and submit your VGTR claim to HMRC and deal with any queries raised by HMRC. We also offer other services associated with the VGTR claim process. Please see here for further info. 

Importantly, our fees for VGTR claims are only payable once HMRC have paid out your claim. For full details, please see our Pricing page. 

Let’s work with some simple numbers here and assume all of your spend is EEA (European Economic Area) qualifying core expenditure for VGTR purposes.  

Very simplistically, if you have spent £200,000 developing a video game, and have no income (ie, you’re loss making), your payable tax credit would be 20% of  £200,000 which is £40,000. This would be paid out in cash by HMRC.  Clearly this is a very simplified example to help understand the headline figures, and is based on a number of assumptions, however it provides an indication of the benefits of claiming VGTR.