Specific tax relief has long been lobbied for by the video gaming industry. This was introduced for qualifying spend incurred from 1 April 2014.
Some companies will already be aware of video games tax relief. Indeed, some companies will already be claiming.
For those of you not already claiming, the benefit can be substantial – an additional deduction to reduce taxable profits and, where the video game trade makes a loss, this can be surrendered for cash. The potential benefit can be worth as much as 20 per cent of the qualifying production spend.
As with many tax reliefs, there are criteria to meet. Firstly, the game has to be certified as British via the British Film Institute. This cultural test is a points-based system – and the criteria are wider than you would think eg characters from either the EEA or an undermined location (eg outer space) meet the British criteria.
Secondly, you can only claim on certain costs. Broadly, most costs of production will qualify, unless specifically excluded (usually where not relating to the production of the game itself).
It gets complicated
So far, it sounds relatively straight forward. In many ways, this is true but, as always, the devil is in the detail and there are some aspects that are rather complex. For example, every video game has to be treated as a separate trade – so if a company makes 20 games, the tax computation will need to split out 20 separate gaming trades from the main trade.
Additionally, as this is still relatively new legislation, how this works in practice is continuing to evolve and we are seeing differences of opinion. Where there are grey areas, careful consideration should be given as to the final submitted claim and the level of disclosure made to the tax authorities.
It is not just with the tax authorities where grey areas arise but with the British Film Institute – there is guidance on the cultural test but it will not cover all eventualities and it is up to the company to make a case for any points they wish to claim.
As can be seen, this is a welcome, albeit complicated relief. There are other factors to bear in mind when making claims. For example, the interaction with R&D relief can be extremely complicated, as companies cannot claim both reliefs on the same spend. Where R&D relief is claimed under the large regime, R&D relief has to be given in priority to video games tax relief; but where claiming R&D under the SME regime, the company has a choice (and it is not always clear-cut as to which option gives the best result).
There are a number of ways by which reliefs can be maximised – in some cases, these have been given the green light by HMRC, albeit only informally/verbally and therefore HMRC could possibly change their minds.
If you are not making any claims, it is recommended that you consider doing so.
If you are making claims, it is recommended that you consider whether these have been maximised. There are a whole range of ideas which can help improve upon existing claims.
At RSM, we have the experience and expertise to help you with your claims and we would be delighted to offer a gratis initial meeting/call to explore whether there is scope for us to help you make the most of these advantageous tax breaks.
For more information please comment below or get in touch with Matt Appleton.