Have you met the Super Mario Brothers? Been introduced to Lara Croft or Zelda? Or maybe your gaming tastes are more Call of Duty.
Even if you’re not a regular gamer you’ll probably have children who are or know someone who enjoys gaming. Whether that’s in the bustling streets of fictional Los Santos in “Grand Theft Auto V” or the adrenaline-fueled pitches of the “FIFA” series. Or maybe they enjoy catching Pokémon or joining in with the Fortnite dance craze. There are hundreds of video games available to suit every taste. Many created and developed in the UK.
It’s safe to say British studios have left an indelible mark on the gaming world. With a perfect blend of innovation, creativity, and technical prowess, these games and many others have captured the hearts and imaginations of players worldwide. Solidifying the UK’s reputation as a powerhouse in the realm of interactive entertainment.
WHAT’S IT WORTH?
Over the past decade, video game development in the UK has undergone a remarkable evolution. It’s now globally at the forefront of the industry. Since Video Game Tax Relief (VGTR) was introduced in 2014, companies have made claims for 1,940 games, with UK expenditure of £5.1 billion.
In an era where innovation is the driving force behind the video games industry, tax reliefs play a crucial role in bolstering development and production. At the most recent spring budget it was announced that Video Games Tax Relief (‘VGTR’) is going to be replaced by a new relief, the Video Games Expenditure Credit (‘VGEC’).
The new scheme will run alongside VGTR for accounting periods beginning on or after the 1st January 2024, with companies being required to transition to the new relief for new video games starting development after 1st April 2025.
Below we cover off the key changes and what steps should be taken by video games production companies to help prepare for the transition.
ABOUT VGTR
VGTR is a scheme that allows a British video game development company to claim relief on money spent on the design, production, and testing of a new video game via a deduction in their taxable profits or through surrendering the loss for a payable tax credit. A company may make several tax relief claims for a game during the production process and a claim may cover several games. However, this is soon to be replaced by VGEC. The scheme has been based on the exiting R&D Expenditure Credit Regime and will look to incentivise UK based studios to carry out their activities solely in the UK to spur domestic innovation and skills development.
WHAT IS VGEC?
VGEC comes with a headline rate of 34%, which, after calculations linked to the current corporation tax rate, is expected to be an effective rate of around 25.5% (just over the current VGTR relief of 25%). It will be applicable to expenditure on goods and services used or consumed in the UK, contrasting VGTR which includes the European Economic Area (EEA). VGEC removes the subcontracting limit and imposes a minimum eligibility requirement of 10% expenditure used or consumed in the UK. As an expenditure credit the relief is recorded as an income and included in a company’s profits and subject to corporation tax.
For studios that mainly operate domestically, the lifted subcontracting limit and higher relief rate will be advantageous. However, studios with a significant portion of their operations conducted overseas might find their claimable tax relief reduced due to the UK-specific focus of VGEC.
While the introduction of VGEC may seem distant, it’s critical for video games companies to start planning their strategies now. Interested in understanding more about VGEC and how it could impact your business? Get in touch and let’s talk it through over a coffee or cup of tea.
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