In the UK, game developing companies can use different forms of tax relief to enhance their investment and improve their cash flow. Are you making full use of this government support? Have you considered R&D tax relief and Patent Box as well as maximising your Video Games Tax Relief?
Enhancing your VGTR claims
The Video Games Tax Relief, (VGTR) covers “core expenditure” ie investment in designing, producing and testing a game. VGTR is a cash relief worth between 15 – 20% of core expenditure in the European Economic Area (EEA).
To qualify, games need to be certified by the BFI as ‘culturally British’. However, the definition of ‘Britishness’ is quite broad. Games that are developed in the UK and set in a fictitious world or that are based on real world games (such as solitaire) can often qualify.
You should make sure your VGTR claim is complete. In our experience, gaming companies are often leaving out a broad spectrum on costs that they could claim for. It is always worth reviewing the entire costs associated with a game (direct and indirect) for qualifying costs attributable to the claim. These additional qualifying costs can quickly add up and make a meaningful difference to the cash relief paid to your company.
Benefit from R&D tax relief worth up to 33% of qualifying expenditure
Research and Development (R&D) tax reliefs are available where a company is seeking to achieve an advance in science or technology. In the gaming sector, this is often where a company is creating a technology platform on which a number of games can be built and which necessitates solving complex software engineering challenges.
VGTR and R&D tax relief cannot be claimed on the same expenditure so it is important to identify which expenditure qualifies for which relief and be able to demonstrate a clear audit trail in the event of a sale of the business or game or HMRC enquiry into the R&D or VGTR claim.
Elect into the patent box to reduce your effective rate of corporation
Where a company has patented an element of the technology platform on which the computer games are created, it may be possible to elect into the UK patent box rules and thereby reduce the corporation tax payable on the licence income for use of the technology to around 10%.
How do you score?
Game developers are not making the most of the creative and R&D tax relief schemes available. Companies typically claim one or the other, or none at all. However, the reliefs are not necessarily mutually exclusive, and where your company has projects that qualify for VGTR, it is likely that R&D tax relief (and sometimes patent box) will also be relevant.
Fortunately, it is not hard to take advantage of the UK tax reliefs available. The best approach is to analyse your expenditure throughout the gaming lifecycle and claim what you are eligible for.
Of course, there can still be complexities in leveraging the various cash incentives available and balancing them with tax-efficient exit strategies, transfer pricing requirements and new tax issues on the horizon such as IR35 and Digital Taxes: that’s where you will find expert advice is most valuable.
For help and advice on the tax reliefs available to gaming companies and the overlap with other tax issues, please contact Carrie Rutland.