03 March 2023
The recent HM Treasury audio-visual tax reliefs consultation stated that the government aims to simplify and modernise the existing audio-visual tax reliefs that are critical to the UK’s film, TV and video games industries. In addition, the proposed measures seek to address concerns raised by industry stakeholders regarding the impacts of the OECD Inclusive Framework’s ‘pillar two’ rules, which threaten the ongoing effectiveness of the existing reliefs.
Overall, our response to the consultation welcomed the proposed move towards an expenditure credit mechanism and the additional benefits this should bring to many participants in the UK’s audio-visual industries. However, we note that many in the video game sector are concerned or unsure about the impacts of this change on them. A survey by The Independent Games Developers’ Association (TIGA), the trade association for the UK video games industry, noted that the majority of respondents were either against such a wholesale change or unsure of the implications. Is there reason to be fearful?
Whilst we feel, on balance, that changing to an expenditure credit is a welcome move, certain design features are needed to ensure its effectiveness, not least a commitment to maintain or increase current levels of support for all claimants, but also ensuring no restrictions exist on the availability of relief (such as the PAYE/National Insurance contribution caps seen in other similar regimes). Furthermore, we are concerned that the proposed changes to restrict the availability of relief for European Economic Area expenditure for video games developers is potentially damaging to the UK industry. We therefore proposed that the government should consider making overseas expenditure that meets appropriate conditions eligible for relief, or providing an allowance for a proportion of eligible expenditure to be incurred overseas.
We also called for the government to take this opportunity to consider simplifying the claim calculation and process. The existing cumulative nature of claims, 80% cap on qualifying expenditure and subcontracting limit all create additional complexity within the current video games tax relief regime, which, in our view, could be removed without jeopardising the fiscal sustainability of the regime (a key stated aim) whilst having positive impacts on the industry.
Our final thoughts are that, whilst the level of benefit under an expenditure credit regime should be at least the same or greater than under the existing audio-visual regimes for all claimants, the government could also consider higher rates of relief for smaller companies, as this could provide a greater incentive for entrepreneurial growth, which may result in only minimal cost to the exchequer.
The proposed reforms have the potential to be highly beneficial for the UK audio-visual industries, but there is also a need for them to be seen to be successful in attracting new investment, as international competition amongst tax jurisdictions in attracting creative sector businesses continues to rise. In this sense, the old adage that if you’re not moving forward then you’re moving backwards would seem apt and should not be ignored.