How to maximise your Video Games Tax Relief claim

Video Games Tax Relief is not always easy to understand, which is why the GamesIndustry.biz Academy put together an in-depth guide to the process -- you can find that here.

Video Games Tax Relief (VGTR) is a very generous cash incentive administered by HMRC, presenting UK game developers with the opportunity to receive between 16% to 20% towards the cost of producing a game.

Recent figures from HMRC show that, since the VGTR was launched back in 2014, £324 million has been paid out to the development of 1,110 games in total -- we're not talking small change here.

£324m has been paid out to the development of 1,110 games in total -- we're not talking small change here

Almost any game, for any platform, that passes the British Cultural Test and is intended to be released into the public domain can claim VGTR. However, it's important to note games which are designed to facilitate gambling, or for promotional/advertising purposes, will not be eligible.

In order to qualify for VGTR, a game must first pass the British Cultural Test, which is administered by the British Film Institute (BFI). In order to pass and receive a BFI certificate, a video game must achieve 16 points out of a possible 31.

Here are the six top tips any VGTR claimant needs to maximise their claim.

How to reduce the cost of obtaining a BFI certificate

For context, the certificate is split into four sections that combine to make up 31 points. Those being:

• Section A: Cultural Content (the game's characters, locations, dialogue, and subject matter)
• Section B: Cultural Contribution (impact on British culture, diversity, and heritage)
• Section C: Cultural Hubs (where the work was located)
• Section D: Practitioners (where the development team is based)

With only 16 points required to achieve the certificate, it is well worth aiming to achieve all 16 through sections A and B, which has 20 points available. An accountant's report is required for Sections C and D and these alone can cost as much as £2,000 per BFI application.

If you do need to dip into C or D, however, start with D as this only requires the accountant to verify individual identities. It will then be a lot cheaper than an audit of the production costs, which is required in Section C.

Further information on the 31 points that are available to secure a BFI certificate can be found on the BFI website.

Undertake your activities in the EEA

Costs relating to activities undertaken in the European Economic Area (EEA) attract VGTR. So when it comes to making hiring and outsourcing decisions, don't forget to factor in the 16% to 20% VGTR rebate for work undergone in the EEA.

Make sure you claim your overhead costs

Many operational overheads; including rent, rates, utilities, travel, and subsistence and training are all eligible as part of the claim.

To ease this process you just need to deduct items like sales and marketing, entertaining and non-trading overheads. Costs associated with the conceptual design work of a video game can also need to be deducted.

Note, however, that EEA expenditure is not always core expenditure. Some EEA costs will not be core because they refer to activities that took place in the initial design stage, or during commercial exploitation of the video game. It's therefore recommended referring to the Government's S1217AD Corporation Tax Act 2009 for more information on eligible core expenditure in respect of VGTR.

Utilise your accounting software to help apportion costs to each game

If you are planning on making multiple claims across a calendar year, use good accounting software to separate costs per game. Good examples of this include AlphaTax and IRIS.

It is a good idea to set-up cost centres or cost units for each game so that you can then use suitable and reasonable apportionment methods to allocate costs to each project. It will make your end of year reporting by trade (each game) much easier.

VGTR tax treatment is a very complicated area and many tax returns are submitted incorrectly, like tax computations not being split by trade. Not only does this delay the processing of your claim, but HMRC can also raise stiff penalties for incorrectly calculating the tax credit payable, for claiming non-eligible costs and non-EU costs and for claiming non-VGTR losses early.

Create a separate company for 'high ticket' titles

We recommend setting up a separate legal entity for each game that has a production cost in excess of £500,000, known as a Special Purpose Vehicle (SPV). Not only will it allow you to keep separate and accurate records of production costs, but you will also benefit from receiving 20% VGTR if the game breaks even or makes a loss.

Claim for abandoned games

And finally, yes, any games that have been abandoned during development can still be subject to VGTR, providing that the intention was originally to release them to the public.