What Is Video Games Tax Relief?

Video Games Tax Relief (VGTR) was introduced by the government in 2014, in recognition of the value it creates to the economy.  Data from HMRC released in 2018 shows that the scheme has paid out £230 million to claimants to date.

The sector is worth around £3 bn to the economy and employs over 47,000 people so it isn’t surprising that the government has sought to further encourage activity related to video games’ creation and production.

VGTR allows limited companies to claim for a deduction of corporation tax, which in some instances can be claimed as a repayable tax credit. In stark terms, this means qualifying companies can claim back up to 20% of their production costs.

How does HMRC define video games?

A video game is defined as an electronic game played through a device such as a computer monitor, smartphone or television.

Games are required to have an uncertain outcome, with the central player’s actions needing to meaningfully impact the flow of the experience.

Whilst the audio content, such as soundtrack or sound effects, are inclusive within HMRC’s definition, the devices and hardware they are played on are not.

What types of games qualify for VGTR?

To qualify 25% of the eligible costs associated with the game must have been incurred within the European Economic Area (EEA), alongside being certified as being British by the Secretary of State.

The latter is administered by the British Film Institute (BFI), through the Cultural Test for Video Games.

This is a points-based system, which in most instances will require companies to score 16 out of a possible 31 points. Key parts of the test include assessing the location of where the game is made, alongside the residency status of key staff used in it’s manufacture.

The British cultural test is wide-ranging so it is still worthwhile for games to undergo the test even if you are unconvinced that they would necessarily pass.

Successful applicants are issued with a certificate to prove their eligibility. Once this has been received claims are made via a company’s corporation tax return (CT600).

Are there any specific exclusions?

By category, all types of video games qualify for the scheme, other than those which are created for advertising or promotional purposes. Additionally, games produced for the sole purpose of gambling are also excluded.

What counts as qualifying expenditure?

Core expenditure within the making of games is qualifying for VGTR purposes. This includes the design, testing, and manufacture of the game.

Costs related to getting the game ready to go to market, including debugging and maintenance are included.

Promotional costs such as marketing, advertising and entertaining are not included.

Core expenditure carried out by subcontractors is allowable but is capped to £1 million per game.

Can expenditure already used within an R&D claim also be applied?

Whilst companies can make both R&D and VGTR claims, costs that have already been included in one of the two cannot be included within the other.

The most tax-efficient way of applying the costs to the two different schemes can differ depending on the individual circumstances of the business. It is therefore recommended for you to speak to an accountant for professional advice.

How are claims calculated?

Claims are made under corporation tax filings, with VGTR being claimed on enhanceable expenditure which is the lower of:

  • 80% of the total core expenditure
  • actual EEA core expenditure incurred

Loss-making companies are able to carry the losses through to the next accounting period or surrender part of it in cash with the balance being carried forward.

Surrenderable losses are 25% of the lower of:

  • The company’s available loss for the accounting period
  • Enhanceable expenditure for the period


Income £0
Expenses £-500,000
Trading Loss £-500,000
Deduction is the lower of:
EEA Core Expenditure £-250,000
80% Core Expenditure £-400,000


In the above-worked example the company has no income and total expenses of £500,000 related to developing a new game. £250,000 of these are spent within the EEA.

The enhanceable expenditure element is £250,000 (the lower of EEA core expenditure and total core expenditure in the period).

In this instance, the allowable deduction for corporation tax is £750,000 (made up of actual core expenses of £500,000 and enhanceable expenditure of £250,000).

The company can carry this total loss forward to the next period or may surrender part of it for cash. The surrenderable loss is the lower of the total loss of £750,000 or the enhanceable expenditure of £250,000.

The repayable element is £62,500 (25% of the enhanced expenditure), with the balance of the loss (£500,000, being £750,000 less £250,000) being carried forward to the next accounting period.

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