The VGTR (video games tax relief) is a tax relief for producing video games and has been crucial in enabling the UK games industry to compete on a more level playing field against the international competitors.
There are many opportunities for video game producers to help maximise claims, but also pitfalls to be wary of, and claiming relief can be a slow and costly process.
When the UK leaves the European Union at the end of the transition period on 31 December 2020, with or without a deal, the terms and conditions of VGTR could be reconsidered by the government. In a recent report TIGA has suggested that VGTR could be made even more impactful in the future. The most effective and simplest reform would be to increase the rate of the relief, reform outsource provisions and also simplify claims.
Companies should also consider the use of a SPV (special purpose vehicle to maximise claims. Where a SPV is set up for commercial purposes and any cross-charges are at a commercial rate, this can increase the benefit of the company’s claims, as the commercial rate may be higher than cost). However, care must be taken to ensure that any such structure and any rates are genuinely commercial and that any cross-charges are settled within four months of the year end. Consideration also needs to be given to whether any payments are subcontract, as there is a cap per game for tax relief purposes.
The tax benefit at stake can be significant – either reducing taxable profits or generating a cash credit (even where no corporation tax has been paid). The benefit can be as much as 20 pence in the pound, in relation to the costs of producing the game.
In addition to the creative sector tax reliefs, there may also be scope for R&D and patent box tax reliefs. The interaction between R&D and creative sector tax relief claims can be complex. With coronavirus and the Brexit transition, now is the ideal time for the government to review the current VGTR. The gaming industry will only continue to grow, and we can make sure the UK is well up the leader board in the global market.