Video Game Tax Credits Explained

Video game tax credits, also commonly referred to as VGTR (video game tax relief), are a UK government incentive to help game developers claim tax credits on their projects.

That’s because the production costs associated with developing video games can be a huge barrier when it comes to getting your project over the finishing line.

Fortunately, this guide will help you see if you’re eligible for VGTR and how to unlock valuable extra funding.

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What is Video Game Tax Relief and who’s it for?

VGTR is intended to provide a much-needed tax rebate for the costs spent designing, producing, and testing video games but, as always, there are some limitations and caveats to qualify.

  1. Your business must be a Video Games Development Company (VGDC). If you’re making a video game and looking into claiming VGTR, though, it’s likely this will be the case.
  2. As well as being a UK corporation or a permanent UK establishment (basically a UK corporation tax payer), your company must also:
    – Be actively engaged in planning and decision-making
    – Directly negotiate, contract and pay for rights, goods and service
  3. 25% of the costs arising from designing, producing, and testing the video game must come from UK or European Economic Area (EEA) services.
  4. Where two or more qualifying VGDCs are involved in a video game production, only one will be eligible for video games tax relief, designed to prevent abuse of the system. This essentially boils down to whichever company is most involved in the qualifying conditions already outlined above.
  5. Your video game must be certified as British by the BFI (British Film Institute) and aim to be supplied to the general public. This means you have to apply for a certificate under the Cultural Test Regulations. You can be granted a certificate for both finished projects and projects in progress.

It’s important to note that if the company most involved in the production of the video game is not a UK corporation tax payer, then it won’t be eligible for video games tax relief. As you can see, there’s a lot to get your head around. That’s why we’re here to help prepare your VGTR claim.

What’s the BFI cultural test for video games?

The BFI cultural test is a points-based test used to classify your video game as British. To qualify, you must earn 16 points out of a possible 31. The test has four sections.

Cultural content: 16 points

A total of 16 points are available for British or EEA content. This can include UK or EEA settings (real or fictional), UK or EEA citizens or residents, as well as British or EEA subject matter and dialogue.

Cultural contribution: 4 points

A total of 4 points are available for elements of the video game that show British heritage, creativity, and diversity.

Cultural hubs: 3 points

A total of 3 points are available for using video games facilities from the UK. This includes things like conceptual development, storyboarding, programming, design, music recording, audio production, and voice recording.

Personnel: 8 points

A total of 8 points are available for UK and EEA citizens or residents who have key creative roles in developing the video game, such as project leaders, scriptwriters, composers, artists, programmers, and designers

How much is Video Game Tax Relief worth?

VGTR claims work by reducing your profits or increasing your loss, so that in either case, you’ll have less corporation tax to pay.

This amounts to whichever is the lower of the following:

  • 80% of total core expenditure
  • The core expenditure total for goods or services provided from the UK and EEA

Where your company is making a loss, some or all of the loss can be used to receive a tax credit rate of 25%.

If that’s as complicated as it sounds, that’s because it is. The amount you can claim will obviously depend very much on your company’s spend, as well as whether it’s making a profit or loss, meaning there is no one-size-fits-all answer to how much you may get. That’s why it’s best to let us prepare your claim for you.

Are all video games eligible for tax relief?

No, not at all. In fact, some games are an instant no, so make sure yours isn’t one of the following before you start applying. These include any games produced for advertising, promotional, or gambling purposes.

What’s more, at least a quarter (25%) of your game’s total core expenditure must come from UK or EEA services for your video game to be eligible for VGTR.

If you’re not sure where your video game falls, we can help you work out your eligibility and maximise your chances of qualifying for video games tax relief.

How creative tax credits helped a new video game development company

"Thankfully, we came across Adsum’s Creative Tax Credits loan. We were able to get the money within 48 hours and the best thing was we didn’t have to worry about repayment as it came directly from HMRC."
View Case study