Some companies are allowed to claim VGTR and R&D Tax Relief at the same time. But only in very specific circumstances. Here’s what you need to know about how the two schemes work together.
R&D Tax Relief and Video Games Tax Relief are two of the government’s most popular and generous sources of corporate funding.
Over the years, they’ve provided billions of pounds in tax reductions and cash credits to ambitious startups and scaleups, enabling them to invest, compete, innovate and ultimately, grow.
But while the two schemes share many of the same benefits, they serve very different kinds of company.
R&D Tax Relief encourages firms to conduct cutting-edge problem solving to advance their technical field.
Video Games Tax Relief rewards game developers that are building titles with close cultural connections to the UK or Europe.
Though the two schemes focus on different kinds of development work, some games companies – those working on innovative motion capture technology, for example – will be eligible for both VGTR and R&D Tax Credits at the same time.
This begs the question: Can companies claim for both schemes?
The good news is that, yes, under certain circumstances, your business can claim both Video Games Tax Relief and R&D Tax Relief on your development expenditure. In fact, doing this might be the only way to maximise your funding.
The bad news is that filing compliant claims for both schemes is exceptionally complicated. And HMRC has strict rules around how VGTR and R&D Tax Relief interact.
I’ll explain more about what it means to apply for VGTR and R&D Tax Relief and what conditions you need to meet to file for them simultaneously.
But if you are considering claiming both schemes, I strongly recommend you consider working with a tax relief specialist.
Is VGTR compatible with R&D Tax Relief?
VGTR and R&D Tax Relief have very different eligibility criteria.
But let’s assume that your company qualifies for both schemes. Does this mean you can claim both kinds of relief?
To answer this question, we need to consider which of the two R&D Tax Relief schemes you are eligible for.
While you’ll often hear people refer to R&D Tax Relief as one initiative, it’s actually made up of two schemes: SME R&D Tax Relief and the Research and Development expenditure credit (RDEC).
SME R&D Tax Relief helps small and medium-sized businesses and is slightly more generous.
RDEC supports larger companies, plus innovative SMEs that aren’t eligible for the SME scheme.
Here’s a useful article explaining which one you should be applying to.
SME video game developers
If your studio is eligible for SME R&D Tax Relief, you won’t be able to claim R&D Tax Relief and Video Games Tax Relief for the same projects.
In other words, if Project A qualifies for both SME R&D Tax Relief and Video Games Tax Relief, you can only claim relief on Project A’s expenses through one of the two schemes.
That’s because both SME R&D Tax Relief and VGTR are classified as ‘notified state aid’. Under current state aid rules, companies cannot claim more than one kind of notified state aid for the same development work.
If one of your projects does qualify for both schemes, it’s usually better to claim SME R&D Tax Relief because it provides a higher return than VGTR.
Here’s a comparison:
| SME R&D Tax Relief | VGTR | |
|---|---|---|
|
Profitable |
Up to 24.7% |
Up to 15.2% |
|
Loss-Making |
Up to 33.35% |
Up to 20% |
What about claiming for multiple projects?
But what happens if you’re working on multiple projects, all of which are eligible for VGTR but only one qualifies for SME R&D Tax Relief?
In that scenario, you can claim SME R&D Tax Relief on, say, Project A, and Video Games Tax Relief, on Projects B, C, D, etc.
They’re different pieces of development work, so this wouldn’t violate state aid rules.
But keep in mind that HMRC has a specific definition of ‘project’. And it’s not especially intuitive.
So make sure you have correctly isolated your projects before you start dividing up your expenditure between them.
What if I qualify for RDEC?
Things are different if your studio qualifies for RDEC.
Because it’s significantly less generous than the SME scheme, the Research and Development Expenditure Credit is not classified as notified state aid.
This means you are allowed to claim RDEC and VGTR on the same project.
However, under HMRC rules, you are not allowed to claim any expenditure which is eligible for RDEC under the VGTR scheme.
This is true regardless of whether you actually file an RDEC claim.
Here’s what HMRC’s official guidance has to say:
“A company is entitled to claim the RDEC if it has qualifying expenditure for the accounting period…any such expenditure is not eligible for Video Games Tax Relief (VGTR), whether or not RDEC is actually claimed.”
To maximise your relief in this situation, you need to identify all expenditure which qualifies for RDEC. Then do the same for VGTR.
Be careful that you assign every penny to the right scheme and don’t claim for anything twice.
It’s easy to make mistakes when you’re trying to claim two kinds of tax relief on the same project.
But if you do make a mistake, HMRC could impose a penalty or delay your cash by several months.
TL;DR
It is possible to claim both VGTR and R&D Tax Credits. But it’s complicated.
If your studio qualifies for SME R&D Tax Relief, it can’t claim VGTR and R&D Tax Relief on the same project. But you can claim the two reliefs on different projects, assuming they are independently eligible.
If you qualify for the research and development expenditure credit, you can’t claim VGTR on any costs which are eligible for RDEC. That rule aside, you can claim VGTR and RDEC on the same project.
Remember to be extremely careful when dividing up your costs. If you make a mistake, you could face trouble from HMRC.
Questions?
Those are the main things you need to know about claiming for R&D Tax Relief and VGTR.
As I said, it’s a complicated situation. So if you have any questions, don’t hesitate to get in touch. Our tax relief experts would be happy to point you in the right direction.
And if you are considering hiring a specialist, here’s some food for thought: our top five reasons why it might be the move for your studio.
