Six ways to make the most of Video Games Tax Relief

"From Lego Star Wars to Moshi Monsters, our video games companies are already regarded as world leaders, and our ongoing support will ensure they continue to grow from strength to strength."

It was with this affirmation of support that, in August 2014, the coalition government launched its Video Game Tax Relief initiative. More commonly known as VGTR, the measure allows games companies to claim back up to 20% of eligible expenditure production costs for game development projects.

Over the last two years, £3.5m has been loaned by the Altara Games fund to teams around the UK. Having assisted with financing for over 16 individual games projects, we have been able to observe first-hand how use of VGTR can maximise development budgets and streamline cashflow for independent studios.

From this, we have learned a great deal, especially about some of the ways studios can get best value from VGTR. Read on for our six top tips:

1. Start Right

From the beginning, it's vital to arrange your company structure in the right way, or else you might miss out on certain benefits. Find yourself a specialist tax accountant and give them a call. For them, it's the opportunity to give a sales pitch, but for you, it's a chance to get the advice you'll need to get your project underway. With the right advice and structure, you'll be able to maximise your claim.

2. Don't Leave Money On The Table

Though designed to be as straightforward as possible, there are details within VGTR that a non-expert may miss or apply incorrectly. For example, the ability to apply a reasonable uplift to your costs, if the company is set up as an SPV (Special Purpose Vehicle) contracting to a main operating company.

Without a specialist tax accountant to guide you, it's all too easy to under-claim, losing out on money that you could be using on your game. Check how many VGTR claims your accountant has made to date, including how many have had HMRC queries, and how many have succeeded, as well as making sure they have a good understanding of what can, and cannot, be claimed. VGTR is not like an R&D tax credit, claimable only against personnel costs. It's quite a lot more versatile than that, but a generalist accountant may not realise the full extent of its uses.

3. Write Well, Write Once

When submitting your claim, HMRC will want to be able to fully and easily understand the reasoning behind the claim amount. Make sure the analysis is detailed enough to justify your claim, but is also broken down clearly into key areas of expenditure. Check carefully to ensure you aren't trying to claim for anything that's ineligible for VGTR, and that all your numbers add up! Hiding something, forgetting something, or not making your language clear will only result in frustration, as HMRC will send queries, delaying your payment. Even in simple cases, a delayed claim can extend a six-week turnaround to over three months.

4. Two Accountants May Be Better Than One

Fundamentally, our advice is always to utilise the expertise of a specialist tax accountant to deal with your VGTR claim. However, that doesn't mean you can't keep your existing accountant for your main accounts even if they aren't the right person to specifically handle the VGTR claim. As VGTR is a relief, it is considered an additional element tacked on to your year-end accounts and normal tax claims. A specialist can deal with your VGTR claim and then submit it to your normal accountant to include in their documents.

Both standard fee payment, and "No-Win No-Fee," are offered by various accountancy firms. The latter is lower risk and more cash-flow sensitive, but of course the commission is a much higher cost than fixed fee.

To find a suitable accountant, look for one who has experience in VGTR claims and a background in film and animation tax relief claims. Ask other studios for recommendations, speak to your trade body or consult your lawyer.

5. 20% Gets You In The Door

VGTR offers you a crucial boost to leveraging the full financing for your project, and here there is a useful lesson that games creators can learn from the film industry. Using a company like Altara Games, which loans you the VGTR in advance, means that you already have 20% of your finance in place, making you much more attractive to potential investors. Private investors in particular will see having a cornerstone already in place as indicative of a stronger investment proposition, as another party has already demonstrated willingness to part-fund the project.

6. Be Culturally Proficient - It's Easier Than You Think!

In order to qualify for the VGTR, you need a certificate indicating a pass, or interim pass, for the Cultural Test. There was and are still some misconceptions surrounding the Cultural Test, but in reality, if you're making a game in the UK, through a UK-based company, it's very hard to fail. At Altara, we are yet to see a game fail to meet the threshold score. It only takes fifteen mins to find out so fill in the online form and give the BFI a call - they can help you if you are unsure.

The checklist, which assigns points based on weight, seeks evidence of British or European connections in the game's content, creation and/or creators. A lower threshold of 16 points is required in order to pass, and with four points awards for dialogue recorded mainly in a UK indigenous language (Welsh and Gallic are included!) and another two for performing 50%+ of the conceptual development/storyboarding/programming or design in the UK, it's quick to gauge just how easily 16 points could be within your grasp.

Our experience at Altara Games has shown that Video Games Tax Relief can offer tangible benefits to independent games studios. The flexible and versatile nature of VGTR allows games creators to not only reclaim a percentage of their costs, but also to leverage that financing to attract investors and VCs. When the ease of the cultural test is taken into account, and with such a high percentage of costs up for grabs, applying for VGTR should be a no brainer for any UK based games studio.