Video Games Tax Relief (VGTR) provides UK games studios with thousands of pounds in critical government funding. This guide explains how the scheme works, which companies are eligible, and what you need to do to file your claim.
Video Games Tax Relief – or ‘VGTR’ – is an excellent resource for UK games studios looking for additional funding.
Since its launch in 2014, the popular scheme has delivered over £400 million in tax relief and cash credits to hundreds of developers from all across the country.
There are numerous benefits to applying for VGTR: it’s lucrative, providing more than £200,000 per qualifying game on average; fast, with most companies receiving their funding in less than eight weeks; and accessible, thanks to its inclusive eligibility criteria.
But despite these benefits, many developers are not still claiming the relief they’re entitled to. This is usually because they either don’t realise they’re eligible or don’t know the scheme well enough to maximise their claim.
To help more studios claim Video Games Tax Relief, we’ve put together this quick guide exploring some of the biggest questions regarding the scheme.
The guide covers a range of topics, so do jump ahead to the sections that are most relevant to you and what you’re interested in.
If you’re confused or have any questions, our VGTR experts would be happy to help!
In this guide
What is VGTR?
Video Games Tax Relief – or VGTR – is a government scheme that gives cash and tax reductions to studios for developing games that are culturally-British or European.
VGTR works by refunding developers a share of their ‘core expenditure’ on qualifying games. Core expenditure means costs directly related to game development – like level design or character rendering – rather than early-stage planning or marketing.
VGTR is paid out as either a corporation tax reduction or a cash credit, depending on your studio’s financial position. More on this in the next section.
While the UK video games industry has gone from strength to strength over the last few years, many smaller studios are still struggling to secure enough funding to finish their projects and take their growth to the next level.
VGTR helps to close this funding gap by providing a generous and accessible source of financing.
In the 19/20 tax year, the scheme provided games developers with more than £121 million in funding, which works out to an average of £345,000 per claim.
How much does VGTR pay?
Video Games Tax Relief lets you claim back up to 20% of your core expenditure on game development.
In other words, if you invested £50,000 developing a qualifying game, you could claim up to £10,000 from the government.
In all probability, most of your core expenditure will be staff costs like wages and pension contributions.
But you can also claim relief on things like subcontractor fees and payments for external games testers.
VGTR does not provide relief on 100% of your core expenditure. Instead, it provides relief on the lessor of:
- 80% of your total core expenditure
- 100% of your core expenditure incurred in the EEA
VGTR and Your Finances
Your financial situation also affects how much you can claim. And whether you’ll receive a cash credit or a reduced corporation tax bill.
If your studio is profitable, you will receive a tax relief worth up to 15.2% of your core expenditure. The calculation is 80% of your core expenditure multiplied by the 19% tax rate.
Here’s an example. If you incurred £100,000 of core expenditure developing Game A, Video Games Tax Relief would reduce your corporation tax due on profits generated by Game A by up to £15,200.
If your studio is loss-making, you can ‘surrender’ your core expenditure for a cash credit at a rate of 25p per £1. By doing this, you could receive the maximum relief rate of 20%. That’s the 25% credit multiplied by 80% of your core expenditure.
Things are a little more complicated if your studio is close to breakeven.
You can read more about navigating breakeven here.
Who is eligible for VGTR?
To qualify for Video Games Tax Relief, your Video Games Development Company – or ‘VGDC’ – must be incorporated in the UK and be liable for UK corporation tax.
Your company must also be responsible for the majority of the planning and production of the games you’re claiming relief on.
Each title you claim for must be independently eligible for VGTR by meeting these criteria:
- Your game must be “intended for supply to the general public”
- At least 25% of your game’s core expenditure must be incurred in the UK or European Economic Area (EEA)
- Your game’s content or development must have strong enough cultural and practical ties with Britain or Europe to pass the Department for Digital, Culture, Media & Sport’s ‘cultural test’
As the name suggests, the cultural test determines whether a game has strong cultural or practical links to Britain or countries in the EEA.
You can find more information about passing the cultural test in the next section.
How do I claim VGTR?
There are generally five steps to filing for Video Games Tax Relief.
First, you need to work the game or games you are going to include in your claim.
You should only select titles that meet the eligibility criteria laid out above.
Once you've selected your games, you need to have them certified as 'British' by DCMS.
You do this by taking the cultural test, which is administered by the BFI.
Your game needs 16 out of a possible 31 points to pass the test, which awards marks for cultural content, contribution, hubs and practitioners.
To earn these points, you will have to prove that your game meets the test's criteria by supplying evidence like scripts, concept drawings, and a copy of the completed game.
If you're claiming relief for a finished game, which is ready to be made available to the general public, you need the final certificate.
If you're claiming for an unfinished game, you'll need the interim version.
BFI will usually award your certificate in about a month. So we suggest you file your application with BFI before working on the financial portion of your claim.
While you're waiting for the BFI to process your cultural test application, it's time to get started on the financial part of your claim.
Start by identifying all core expenditure associated with your game. This includes staff salaries, invoices from subcontractors and voice actor fees.
If you want to make sure you're claiming as much relief as possible, you need to find and include every penny of eligible expenditure. So be thorough.
Certain costs, especially those related to staff, will be spread across multiple projects. Some of these projects won't count as core development work, meaning they aren't eligible for Video Games Tax Relief.
For these more general costs, you will need to work out how much is attributable to claimable development work. This process is called apportionment.
For example, if one of your developers spends 50% of their time on a VGTR-eligible game and the other 50% on a separate and ineligible project, you should only apportion half their employment costs to your claim.
Add up all your core expenditure and then work out the lessor of:
- 80% of your total core expenditure
- 100% of your core expenditure incurred in the EEA
Next, update the 'information about enhanced expenditure' section in your CT600 with your financial calculations.
Mind that you must complete different parts of the form depending on whether you're claiming tax relief or the cash credit.
Lastly, submit your updated CT600, the final or interim certificate from the BFI, and the following information to HMRC:
- The title of the video game(s) in your claim
- Your DCMS reference number, if you know it
- A final statement for the total amount of core expenditure
- A report on how much of that core expenditure took place in the EEA
- The amount of tax deduction you're claiming
- The amount of loss surrendering for a payable credit
That was a basic rundown of what you need to do to file for Video Games Tax Relief.
If you’re working on a particularly complex game or a project with expenditure across different regions and units, or if you have a small team with little or no time to spare, it’s a good idea to work with a VGTR claim specialist.
If you have any more questions about the process or want an expert opinion on your claim, don’t hesitate to get in touch.
When will I receive my money?
Video Games Tax Relief is generally paid out pretty fast.
It usually takes about a month for the BFI to certify your game as British, and then another four to ten weeks for HMRC to process your claim, assuming there aren’t any errors in your filing.
The main factor deciding how long it will take is HMRC’s capacity.
If you file closer to HMRC’s busy period, which stretches from December to April, then your claim is likely to take longer to process.
If you do make a mistake in your filing, HMRC could launch an enquiry, which is a thorough and long-winded inspection of your filing.
The length of an enquiry varies from company to company, but they can delay your cash or tax relief by up to six months.
You can avoid an HMRC enquiry by filing a flawless claim. The best way to do that is to work with a VGTR claim specialist.
Should I use a specialist?
It’s true that some games studios can file their VGTR claim just fine without professional help.
Though we do recommend that you have someone with financial expertise double-check your claim before you submit it to HMRC.
However, if this is your first time filing for VGTR, if you have a small team with little or no time to spare, or if you’re claiming for a complicated project, then a specialist can add real value to your studio.
If you want to learn more about the benefits of working with a VGTR claim specialist, check out this in-depth article.
If you’d rather speak to a specialist directly, drop us a note. One of our tax experts will be happy to help you with your claim or chat with you about our services.