Video Games Tax Relief (VGTR)
Understanding the Video Games Tax Relief
In the UK, qualifying companies can claim tax relief on the development of video games. This video games tax relief (VGTR) is intended to address the underproduction of culturally European video games. Similar creative industry tax reliefs are available across the other creative sectors such as film, animation and theatre.
The value of the tax relief
VGTR is claimed on a company's annual tax return. It can take the form of either:
- an additional deduction (up to 80% of core expenditure) from the company's profits, lowering the corporation tax that the company has to pay.
- a payable tax credit worth up to 20% of total core expenditure on the game, when the project makes a loss.
"Core expenditure" is what’s spent on designing, producing and testing the game. Only expenditure incurred in the UK and EEA is eligible for tax relief. Detailed information on the relief and its value can be found in HMRC's video games development company manual.
Qualifying for VGTR
VGTR can only be claimed by a video games development company (VGDC) that meets the following requirements.
- The company is incorporated at Companies House before full production begins on the game.
- The company is actively engaged in planning and decision-making.
- The company directly negotiates, contracts and pays for rights, goods and services.
VGTR can only be claimed on video games that meet the following requirements.
- The game is intended for supply to the general public.
- At least 25% of core expenditure is incurred within the UK or EEA.
- The game is certified as British by the British Film Institute (BFI) through the Cultural Test.
NB If you are registering a games company at companies house, please consider using the SIC code 62011 if you are a developer and 58210 if you are a publisher.
The Cultural Test
The cultural test is a 31-point assessment to determine if a video game is culturally British, administered by the BFI. The pass mark is 16. There are similar tests for some of the other creative sectors, dating back to 2007.
Video games that qualify under the cultural test are issued with a certificate which much be included with the company's tax return when claiming tax relief. Interim certificates are awarded to games that are currently in development. Final certificates are issued to games that are completed and released. The BFI can advise directly on more complex games, such as those following a games-as-a-service model. Cultural Test applications are made through the BFI's website, where you can also find more detailed information.
The content of the cultural test is as follows.
|Section A – Cultural content|
|A1||Set in the UK, an EEA state or an undetermined location (points awarded for undetermined settings are capped at 3)||Up to 4 Points|
|A2||Lead characters are UK/EEA citizens or residents or are characters from an undetermined location (there is no points cap for undetermined characters)||Up to 4 Points|
|A3||a) British/EEA story or subject matter
b) Video game is based on British or EEA underlying material
|A4||Original dialogue or game text is presented mainly in English language or one of six UK indigenous languages||Up to 4 Points|
|Section B – Cultural contribution|
|B||Video game represents/reflects British creativity, British heritage or diversity||Up to 4 Points|
|Section C – Cultural hubs|
|C1||At least 50% of the conceptual development or storyboarding or programming or design takes place in the UK||2 points|
|C2||At least 50% of the music recording or audio production or voice recording takes place in the UK||1 point|
|Section D – Personnel|
|D1||1 of the 3 project leaders is a UK/EEA citizen or resident||1 point|
|D2||1 of the 3 lead scriptwriters is a UK/EEA citizen or resident||1 point|
|D3||1 of the 3 lead composers is a UK/EEA citizen or resident||1 point|
|D4||1 of the 3 lead artists is a UK/EEA citizen or resident||1 point|
|D5||1 of the 3 lead programmers is a UK/EEA citizen or resident||1 point|
|D6||1 of the 3 lead designers is a UK/EEA citizen or resident||1 point|
|D7||At least 1 of the 7 key Heads of Department is a UK/EEA citizen or resident||1 point|
|D8||At least 50% of the development team are UK/EEA citizens or residents||1 point|
In the context of the cultural test, "undetermined" refers to science fiction, fantasy and generically themed places/characters such as a "forest level".
Economic Impact of VGTR
In the BFI’s 2018 Screen Business Report, it was found that games supported by VGTR provided 9,240 jobs across the industry, including 4,320 game development FTEs. The report also shows that for every £1 invested into the games industry via VGTR, an additional £4 is generated in GVA for the UK economy.
Number of applications and reported budget
This section reports on certification data released by the BFI's Research and Statistics Unit, most recently published on 04 Feb 2021.
This table shows the total number of final certificates issued each year alongside the projects' total final costs and UK expenditure as reported by cultural test applicants. Final certificates are issued to completed games and can only be applied for after the game has been released. The total final cost reported on the application is retrospective and expected to be accurate. Post-launch content released for a game is covered by this final certificate and so expenditure on such development may not be included in the total final costs reported on the application.
|Year||Number of final certificates||UK expenditure (£m)||Total final costs (£m)||UK expenditure as a % of total final costs|
This table shows the same statisitcs for interim certificates. Interim certificates are issued to games currently in development that have not yet been released. Their budgets are estimates provided by applicants.
|Year||Number of interim certificates||UK expenditure (£m)||Total budget (£m)||UK expenditure as a % of total budget|
Tax relief paid to games companies
According to HMRC's Creative industries statistics commentary, published August 2021, a total of £624 million has been paid out to 1,815 claims since the relief was launched in April 2014. In 2020-21, 350 claims were made for a total of £180 million, which represented 640 games. The table below shows the number of VGTR claims and the amount of relief paid on a receipts basis, split by size of claim for the past four years. For further detail and alternative breakdowns, please see HMRC's Creative industries tax relief statistics tables document.
|Size of claim||Number||Amount (£m)||Number||Amount (£m)||Number||Amount (£m)||Number||Amount (£m)|
|Up to £5,000||65||*||50||*||40||*||40||*|
|£5,001 to £10,000||30||*||25||*||30||*||35||*|
|£10,001 to £25,000||80||1||65||1||60||*||45||*|
|£25,001 to £50,000||40||1||55||2||50||2||45||2|
|£50,001 to £100,000||30||2||45||3||50||4||45||3|
|£100,001 to £500,000||65||13||55||12||75||19||85||18|
|£500,001 to £1,000,000||10||8||20||13||15||11||20||14|
Source: HMRC Management Information Systems (MIS)
Numbers are rounded to the nearest 5 and amounts to £1 million. Totals may not sum due to rounding.
*Value suppressed as amount less than £1 million