What Is Video Games Tax Relief?

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.

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).

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.

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.

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.