Tax incentives for games developers

Starting a business as a games developer is difficult. It’s akin to taking on that boss at the end of a dungeon run. You can’t go in unprepared; you need to get the right equipment, you need to make sure you’ve drunk the best potions and have the assembled a skilled group around you.

When you start up as a games development company, you aren’t just looking to create a game you can be proud of, you are also running a business. You will be looking for a mix of resources and opportunities; finding funding and trying to be discovered, while at the same time making sure the day-to-day running of your company is going smoothly. Finding the right help quickly is a key resource.

Valuable help may be available from an often overlooked source – the government. Funding assistance may be available in the form of Video Games Expenditure Credits (VGECs – expenditure credit) for certain companies developing qualifying video games.

Making a successful claim

For games developers to qualify for these tax incentives, you must have/be a company in charge of the design, production and testing of a video game, intended for release to the general public. The qualification criteria to claim the expenditure credit can be broadly summarised as follows:

• The video game has received a British certification from the British Film Institute (BFI);
• At least 10% of the company’s “core expenditure” on the video game development must be UK expenditure (i.e. spent on goods or services used or consumed in the UK).

A little further detail in making a successful claim follows:

• The BFI’s British Certification application will be assessed under a points-based cultural test which considers different criteria, such as where development activity takes place and whether the game includes British characters or dialogue;
• Core expenditure is expenditure on designing, producing, and testing a video game, but does not include expenditure on developing the initial concept, debugging the game, or post-completion maintenance work.

Claiming expenditure credit

If you satisfy the criteria for this tax incentive, you may be able to claim an expenditure credit at the lower of 34% of your UK expenditure or 80% of the core expenditure. If you have a profit making game, you may effectively pay less tax on the profit than another company would. If you make a loss during the development phase you may be able to claim money back.

As most of you reading this aren’t accountants, it’s much easier to see the impact in an example:

• A company spends £100,000 on developing a British game.
• 80% of their core expenditure = £80,000.
• An expenditure credit of 34% of £80,000 is available = £27,200.
• This amount is then brought in as a taxable receipt and subject to corporation tax of 25% (£6,800). This gives a net credit of £20,400.
• If the credit exceeds the company’s corporation tax liability, there may be options available; for amounts to be carried forward, surrendered to group companies, or even paid out to the company.

The credit can provide vital funding, especially during the development stages of the game where income is low or not yet started.

The tax credits can also be used by banks as security for funding, giving you earlier access to cashflow, vital for success. Funding your game in this manner may allow you to defer or avoid bringing in third party investors and would allow you to keep greater control over your company and its creative direction.

Our advice to anyone starting up their own company is to establish a relationship with an accountant with VGEC scheme specialism at the earliest stage and ensure you are in a position to claim this relief as quickly and efficiently as possible. This is essentially free money after all. Doing so may well provide that extra impetus to make your company and game successful and, who knows, finally allow you to defeat that boss.