Video Games Tax Relief provides UK developers with thousands of pounds in government funding. But extra cash isn’t the only benefit of claiming VGTR.
It’s been an excellent few years for the UK video games industry.
While the wider business world has grappled with a raging pandemic and the uncertainties of Brexit, British games studios added more jobs and invested more in new titles than at any other time in the past 14 years.
According to trade association TIGA, the UK’s games development sector now generates more than £2 billion for the economy, thanks to record-breaking growth in the number of developers employed, annual investment by studios, and the number of companies involved in games production.
But while the UK video games industry is doing well overall, many smaller developers are still struggling to secure enough funding to grow.
Gaming’s funding gap
TIGA’s figures show the true extent of this problem.
Of the 1,041 games companies in the UK, almost three-quarters are considered ‘micro-studios’, meaning they employ fewer than five full-time staff. And over the last decade, 40% of all British studios have been forced to close, often because of financial hardship.
This funding gap demonstrates the importance of Video Games Tax Relief, a government subsidy that provides tax relief and cash credits to thousands of UK game developers.
VGTR works by reimbursing studios up to 20% of their core expenditure, meaning costs related directly to game development rather than marketing or early-stage planning.
In the last tax year, the scheme paid out more than £100 million to Britain’s Video Games Development Companies (VGDCs). The equivalent of £345,000 per claim.
But even for growing studios, access to extra investment capital isn’t the only benefit of claiming VGTR.
If your company is developing a game with strong cultural links to Britain or Europe, here are the top reasons you should consider making a claim.
1. Gain ground on your competition
Game development has always been a fiercely competitive industry.
But it has become even more so now that worldwide lockdowns have driven the multi-billion-dollar gaming market to lofty new heights.
Not only do you have to compete with other studios in the UK, but thanks to virtual games stores like Steam, you’re now up against excellent developers from across the globe. Many of whom can build games much cheaper than you can.
Thankfully, VGTR can help your studio shine in crowded games stores.
First, the scheme significantly reduces the cost of game development, meaning you can charge less for titles, premium features, and add-ons while still making a profit. This levels the playing field with countries where costs like wages are consistently cheaper.
Secondly, the funding provided by VGTR allows you to invest more in game development. This means you can increase the quality and variety of your titles. And beef up your marketing efforts to reach a bigger audience.
Supporting UK games developers on the world stage was one of the main reasons the UK government decided to create VGTR. So make sure you take advantage of this extra support if you’re eligible.
2. Earn cash quickly
The second benefit of claiming VGTR is that it pays out fast.
Assuming nothing goes wrong, you should receive your Video Games Tax Relief four to ten weeks after you file.
This isn’t as fast as securing a loan, but it’s much quicker than acquiring equity investment.
Exactly how long you’ll be waiting depends on HMRC’s capacity.
Between December and April, the agency receives more personal and corporate tax submissions than at any other time of year. Tax inspectors quickly reach capacity, which creates a substantial backlog.
If you file during HMRC’s peak season – the spring slog, we sometimes call it – you’ll typically have to wait a little longer to receive your relief. If your financial year ends around December, you’ll almost certainly be filing during this period.
But again, four-to-ten week turnaround times assume nothing is wrong with your claim.
If you do make a mistake, HMRC could launch an enquiry, which is a thorough and time-consuming investigation into your filing. This could delay your 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 expert.
3. Maintain control of your business
Another benefit of claiming VGTR is that it allows studio owners to protect their equity.
Unlike VC and angel investment, the tax relief and cash credits offered by VGTR are non-dilutive. Which means they won’t make you surrender shares in your studio.
Maintaining equity lets you retain more voting rights. And command a higher share of your company’s profits.
Fundamentally, it lets you keep control over your studio’s direction.
That said, VGTR can also be of great value if you decide to go down the equity funding route.
Receiving VGTR demonstrates that you have access to another, reliable source of funding, which suggests a healthier financial outlook for your studio.
A healthier outlook gives you more leverage in investment negotiations, allowing you to ask for more money while surrendering less equity.
A well-timed cash injection can also spruce up your studio’s finances and shorten your development roadmap, making you a more attractive investment.
4. Bring development onshore
The fourth and final key benefit of claiming VGTR is that it makes it much cheaper to bring your development work ‘onshore’. I.e. back to Britain.
Onshore development has a mix of advantages over offshoring.
For one, it lets you collaborate with your developers in person, rather than over the phone or via virtual conference call. This can make the work much faster and more connected to your studio’s goals.
Face-to-face meetings are also much better for generating, exchanging and evolving ideas, improving your finished games by leaps and bounds.
Communication between teams meeting in real life is also generally much clearer, resulting in fewer misunderstandings and more accurate applications of designs and instructions.
Better comprehension should reduce the number of iterations in your development process. This leads to faster turnaround times, lower production costs, and higher quality games.
Clearly, the Coronavirus pandemic has made in-person meetings much more difficult. Still, some version of the old normal will return one day. When it does, so will the benefits of in-person interactions made possible by onshoring.
Ready to kick-off your claim?
I hope this article gives you a good sense of why it pays to claim Video Games Tax Relief.
If you are thinking of filing, working with a claim expert like GrantTree will ensure that you’re claiming every penny possible, save you days of effort, and help you avoid trouble with HMRC. And there are other advantages, too.
In the ten years we’ve been running, we’ve won over £150 million for cutting-edge British businesses across the gaming, software development, biotechnology and engineering sectors.
Our team VGTR specialists are standing by help you file. If you’d like to speak to an expert, just drop us a note.