The Video Game Tax Relief (VGTR) is a government scheme under which UK game developers can apply for tax relief funding from HMRC. The main requirement to be eligible is that the game passes the Video Games Cultural Test, administered by the British Film Institute (BFI).
Video Games Tax Relief is part of the Creative Sector Tax Relief, which also covers film, animation and high-end TV production.
What are the main conditions of Video Games Tax Relief?
In order to be eligible for VGTR, the applying company must be responsible for most of the planning, designing, developing, testing and production of a game. Additionally, at least 25% of the eligible costs must be incurred in the European Economic Area.
If two or more companies are working on the same game, only one may apply for VGTR, so it is therefore important to established which one makes the larger contribution, as that will be what’s called the “Video Games Development Company” (VGDC), and will be able to apply for VGTR.
VGTR covers games developed for any platform, including video game consoles, PCs, smartphones, tablets and other mobile devices.
What is the video games cultural test?
The main requirement for VGTR is that the game developed passes the Cultural Test administered by the BFI. If the game is still under development or has not been started, you can apply for an interim certificate, but you can only receive the final certificate once the game has been published.
The Cultural Test looks at the cultural content of the game, its cultural contribution, hubs and practitioners. The game is then scored on a scale from 0 to 31. If the game scores at least 16 points, then it passes the test. The four sections of the test examine factors such as the nationality of the main characters of the game, the setting of the story, its cultural significance, the location where the production took place and the nationality of the core development team. Across all of these factors, the game will score higher if it contains elements of British (or other EEA regions’) culture,
In order to take the Test, the VGDC has to complete the application form and submit a Statutory Declaration to certify that the truth of the particulars in the application.
An Accountants Report is required if an application for a final certificate relies upon points in Section C and/or Section D of the Cultural Test, which concern the development process and staff. The Accountant Report must be prepared by a person who is eligible for appointment as a company auditor under Section 1212 of the Companies Act 2006.
What is the value of the VGTR?
The value of the VGTR for a video game wholly developed in the UK or the European Economic Area (EEA) is 20% of qualifying spend.
Qualifying spend means, in short, spend on designing, producing and testing the game (including DLC and other post-release spend), excluding debugging and maintenance costs and the costs of designing the initial concept.
If the video game is partly developed outside the UK/EEA, slightly different rules apply.
There are a few downsides to the VGTR, these are the main ones:
- The VGTR cannot be claimed in respect of any expenditure that can qualify (or has already qualified) for R&D Tax Credits;
- When the VGDC sub-contracts work, there is a cap of £1m to sub-contracting costs;
- Games produced for advertising, promotional or gambling purposes are excluded from VGTR.