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 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 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
2015	116	180.9	265.6	68.1%
2016	189	202.2	224.5	90.1%
2017	212	248.8	277.5	89.7%
2018	195	201.9	263.9	76.5%
2019	249	624.2	1,206.7	51.7%
2020	262	418.7	454.6	92.1%

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
2015	121	548.0	603.6	90.8%
2016	175	396.7	461.2	86.0%
2017	179	434.3	461.7	94.1%
2018	174	519.8	1,146.5	45.3%
2019	139	399.1	508.0	78.6%
2020	169	1,079.4	1,685.6	64.0%

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.

	2017-18		2018-19		2019-20		2020-21
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
Over £1,000,000	25	77	25	72	30	85	35	142
Total	345	103	345	103	355	121	350	180

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
• Video Games Tax Relief Evaluation Report, (IPSOS, Aug 2017)