Video Games Tax Relief (VGTR)

Understanding the Video Games Tax Relief

In the UK, qualifying companies can claim tax relief on the developemnt 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	OR	b) Video game is based on British or EEA underlying material	4 points
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
Total		31 points

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 table shows the combined total of interim and final certificates issued in each year alongside the budgets and UK expenditure of projects as reported by applicants. Adapted from tables published by the BFI's Research and Statistics Unit. More detailed breakdowns and further information can be found at that link.

Year	Number	UK expenditure (£m)	Total budget (£m)	UK/EEA spend as a % of total budget
2015	237	728.9	869.2	83.9%
2016	365	603.9	691.4	87.3%
2017	391	683.1	739.1	92.4%
2018	369	721.7	1,410.4	51.2%
2019	381	977.6	1,664.6	58.7%

Tax relief paid to games companies

According HMRC's Creative industries statistics commentary, published August 2020, a total of £444 million has been paid out to 1,460 claims since the relief was launched in April 2014. In 2019-20, 350 claims were made for a total of £121 million, which represented 605 games. The table below shows the number of VGTR claims and the amount of relief paid on receipts basis, split by size of claim for the past three years. For further detail and alternative breakdowns, please see HMRC's Creative industries tax relief statistics tables document.

	2017-18		2018-19		2019-20
Size of claim	Number	Amount (£m)	Number	Amount (£m)	Number	Amount (£m)
Up to £5,000	65	(*)	50	(*)	40	(*)
£5,001 to £10,000	30	(*)	25	(*)	30	(*)
£10,001 to £25,000	80	1	65	1	60	(*)
£25,001 to £50,000	40	1	55	2	50	2
£50,001 to £100,000	30	2	45	3	50	3
£100,001 to £500,000	65	13	55	12	75	18
£500,001 to £1,000,000	10	8	25	14	15	11
Over £1,000,000	25	77	25	72	30	85
Total	345	103	350	104	350	121

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

Resources

• HMRC – Video Games Development Company Manual
• HMRC – Creative industries statistics
• BFI – The Cultural Test for Video Games
• BFI – Research and Statistics
• GOV.UK – Video Games Tax Relief
• GOV.UK – Relevant Legislation