For “Super Mario” read “Super Tax Relief”!

A new corporation tax relief has been introduced from 1 April 2014 for UK companies producing video games.  The video games tax relief (VGTR) is similar to the reliefs already available for UK film and high end TV production. 

The relief works by giving the company an additional deduction which will either reduce a company’s corporation tax liability or will allow the company to claim a repayable tax credit.

A company will qualify for the relief if it meets the following main conditions:

  • The video game is “British” (This means the video game must promote British culture and values.)
  • The video game is intended for public supply.
  • At least 25% of core expenditure must be incurred on goods and services from the European Economic Area (EEA).  (Core expenditure relates to pre and post production, design and testing of the video game.)

The additional deduction is 100% of the company’s EEA expenditure in relation to the video game or 80% of the total expenditure if this is less.  If the additional deduction results in a loss arising in the company, it can surrender its losses in return for cash back from HMRC.  This is calculated at a rate of 25% of the loss surrendered.

Where a company also claims Research and Development (R&D) relief, it is important to note that VGTR and R&D relief cannot both be claimed in respect of the same expenditure.

In reality, many companies developing video games have struggled to get HMRC to agree to them qualifying for R&D relief.  This is usually because HMRC have been unwilling to accept that the company is seeking to achieve an advance in science or technology by developing the video game.

Any video games producers should be advised of this generous relief as soon as possible to allow claims to be made.

 

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