The UK is transitioning from video games tax relief (VGTR) to the video games expenditure credit (VGEC). The government’s aim is to maintain the UK's position as one of the world's most attractive locations for video game development. The headline benefit to developers has changed little. The big shift is HMRC's increased focus on reviewing claims, meaning the way businesses prepare and present their claims has become increasingly important.

A £6bn industry transitioning to a new incentive regime

The original VGTR relief helped to make the UK games industry world-renowned. The trade body UK Interactive Entertainment says the sector generates £6bn of gross value added to the UK economy. The industry directly employs 26,000 skilled individuals across the UK.

The introduction of VGEC from 1 January 2024 represents the most significant change to UK video games tax incentives in a decade. The overall level of benefit under VGEC remains broadly unchanged in cash terms. The new regime was intended to help the UK appear more internationally competitive and attractive to inbound investors. As the transition period draws to a close it’s helpful to look at what’s changed, and what activity we are seeing from HMRC.

Three key changes under the video games expenditure credit

Many aspects of the new regime are familiar. It continues to apply to ‘core’ expenditure incurred by qualifying companies undertaking qualifying activities on qualifying games. ‘Core’ expenditure broadly comprises expenditure on designing, producing or testing the game, subject to certain exclusions.

The British Film Institute (BFI) continues to certify which games qualify for the relief. Interim certificates may be obtained during development, while final certificates must be obtained once the game is completed. The most significant changes under VGEC are set out below:

• Taxable expenditure credit: under VGEC, qualifying companies can claim a taxable expenditure credit equal to 34% of qualifying expenditure. Qualifying expenditure is limited to the lower of UK core expenditure and 80% of total core expenditure. As a result, the effective rate of expenditure credit is at most 27.2%. This is recognised above the line in the accounts and is therefore subject to a tax charge at 25%, meaning the net benefit is up to 20.4% of total core expenditure.
• European Economic Area (EEA): expenditure within the EEA could benefit from VGTR, whereas VGEC only applies to expenditure that is ‘used or consumed’ within the UK.
• Expenditure on subcontractors: VGTR limited qualifying expenditure on subcontractors, but under VGEC there is no such restriction.

Consistency is essential to ensure a smooth claim process

Additional Information Forms (AIF) must now be submitted to HMRC before any claim will be accepted. From 1 April 2026, the supplementary form CT600P must also accompany the tax return. Both forms standardise the information supplied to HMRC and are a key part of any submission.

HMRC compares information across BFI applications, AIF, tax returns and tax computations to check for consistency. Maintaining consistency across these documents can be challenging, as an interim BFI certificate may be applied for before forecasts have been finalised.

A key requirement of the AIF is that details of all connected-party transactions must be included. Any such transactions should be undertaken on an arm’s length basis and supported by suitable evidence. HMRC may seek to reduce the level of such costs included within the claim by challenging whether the terms were arm’s length. If any such costs have not been disclosed within the AIF, HMRC will seek to fully exclude those costs from any claim. For some companies this could have a very material impact on the claim.

HMRC acknowledges that it is examining how the reliefs work in practice and that this does mean there is an increased risk of enquiries. HMRC has committed to conducting enquiries professionally, fairly and proportionately. But that may provide little comfort to businesses that rely on the cash flow from these reliefs. This increase in enquiry activity could have a negative effect on the activities these incentives are designed to help. Businesses cannot rely on the cash to make decisions and commit to future projects.

Clear and well-evidenced claims: how we can help

Now, more than ever, information being presented to HMRC must clearly demonstrate the basis on which any claims have been prepared. This is where experienced advisers can help businesses present clear, consistent and well-supported claims.

If you have any questions about your creative sector relief claims, contact Will Simpson, Graham Steele, or your usual RSM representative.

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