Debug Your Tax Bill – Tax Reliefs for Video Game Development Companies
The Video Game Tax Relief (VGTR) scheme has existed in the UK since 2014, but over the last decade the number of claimants has still remained relatively modest given the generosity of the relief.
Since its introduction, VGTR has paid out a total of £1.837 billion related to 3,165 games, which equates to more than £580,000 per game.
In the 2023-24 financial year alone, VGTR resulted in £327 million of relief across 560 claims in the UK for 1,140 different projects. Given that an estimated 5,140 games were developed in the UK during 2024, this would indicate that less than a quarter of games apply for the relief, and yet most games are likely be eligible if they satisfy certain criteria.
The current regime allows relief to be claimed if:
- The game is produced by a UK company who is the main “Video Games Development Company” (VGDC)
- The VGDC is chiefly responsible for actually producing the game (as opposed to merely holding the rights to the game’s production)
- The game is intended for supply (i.e., not just produced for advertising or training, for example)
- At least 25% of core expenditure is incurred in the European Economic Area (EEA)
- It is certified as a “British” game
The latter point is the main challenge to overcome when looking to claim relief; companies wishing to claim this relief have to apply for a certificate from the British Film Institute (BFI), where each game is assessed on its Britishness using a scoring system for cultural content, contribution and the location and nationality/residency of the developers. An “in production” game can claim relief by being issued an “interim” certificate by the BFI, but then must also apply for a “final” certificate once the game has eventually been completed and released.
The rate of relief claimable under the current scheme is generous; for companies that incur at least 80% of core expenditure in the EEA, the effective rate of relief is 20% for most companies, which can be in the form of a tax saving or a payable credit. This means that one-fifth of a company’s development spend can potentially be reclaimed and reinvested into new games and technologies.
From the start of 2024, a new scheme has commenced which will replace the VGTR scheme by early 2027. The similarly named “Video Game Expenditure Credit” (VGEC) scheme is available for games commencing development on or after 1 January 2024, and is mandatory for those that started after 1 April 2025. The main difference is that the legislation is geared more towards UK expenditure than EEA expenditure; to qualify, at least 10% of core expenditure has to be incurred in the UK (compared to 25% in the EEA under the outgoing scheme). The rate of relief is 34%, but the effective rate for companies that incur at least 80% of core expenditure in the UK is 20.4%, so only slightly higher than the VGTR rate of 20%.
There is not a lot of difference between the two schemes, but the VGEC scheme is better for companies that predominantly develop in the UK, (as opposed to elsewhere in Europe), and also for claimants who spend large amounts on third parties (there is no cap on the subcontracted expenditure claimable per game, whereas the VGTR scheme has a £1 million cap per game).
It is fair to say that, overall, both schemes are very helpful and accessible to claimants, and the transition to a new scheme indicates that it is here to stay for the foreseeable future. If you are interested in seeing whether you have scope to make a claim for relief, please do not hesitate to contact us at hello@yes.tax.
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