Tax relief available to ‘console’ developers of UK video games
Written by Azets
Nearly £190 million was estimated to have been paid in video games tax relief to 345 claimants in a year.
But how many in the UK’s £2.8 billion industry are aware of the government-supported scheme and its replacement?
Video games companies in the UK are potentially missing out on millions of pounds of government-supported tax relief.
Government figures show that £189 million was paid out to 345 claimants in the year up to the end of March 2022, according to UK top ten accountancy and advisory firm Azets.
Companies benefited from video games tax relief (VGTR), which is available for expenditure on the development of all British games intended for the public, other than those developed for advertising, promotion or gambling purposes.
“There are more than 2,200 games companies in the UK, but many don’t appear to be making use of this vital relief,” said Stuart Bentley, a tax advisory director for Azets working out of Birmingham.
Core expenditure by video games companies includes costs incurred as a result of designing, producing and testing games.
Stuart said: “With VGTR, as a rule of thumb, relief is available on up to 80% of core expenditure, providing a net credit rate of up to 20% of core expenditure. This benefit is receivable, either as a reduction in tax liabilities or as a direct payment to the company.”
Relief is not available for financing costs, interest, marketing, publicity or advertising costs, nor is relief available for the payment of an option over a video game.
The games industry will shortly see a change to the VGTR scheme.
Introduced by the previous government, for expenditure incurred from 1 January 2024 and for all qualifying new games produced from April 2025, the new scheme is called the Video Games Expenditure Credit (VGEC) scheme.
Stuart said: “This change in scheme might alarm games companies but the long and short of it is that the benefit will continue, with up to 80% of core expenditure remaining eligible for relief and the good news is that the maximum net credit could be slightly higher at 20.4% of core expenditure under the new scheme.”
Asked how the current VGTR, and its replacement, compares with more widely known R&D tax relief support, Stuart replied that “many more costs may be eligible for relief under VGTR as core expenditure can include many more categories of cost than those defined as qualifying under the R&D tax relief/credit scheme”.
He added: “We anticipate a move by the industry towards VGTR/VGEC because HMRC has been challenging the validity of some R&D tax credit claims, thereby reducing the attractiveness of that regime for genuinely creative technology-based businesses.
“Video games companies cannot claim both video games tax relief and R&D tax relief on the same expenditure and therefore care must be taken to ensure that the right claim is made in order to maximise the benefit available.”
In contrast to the estimated 320 VGTR claims, and based on latest available figures from HMRC [gov.uk], there were 90,315 R&D tax credit claims by UK businesses from all sectors, and mostly from small to medium size enterprises, for 2021-22, worth £7.6 billion on £44.1 billion of R&D expenditure.
According to government figures [gov.uk], video games are “played by more than half of British adults and the sector is one of the UK’s fast-growing creative industries, contributing £2.8 billion to the economy and employing 27,000 people in 2019”.
Last year the top-selling video game [statista.com] in the UK was EA Sports FC 24, where you can step into the virtual boots of your football idol.
Hogwarts Legacy was second, followed by Call of Duty: Modern Warfare III.