Video Game Tax Relief: Making The Most Of A Claim

Video games tax relief (VGTR) is a generous relief available for video game development companies. The following summarises some of the key areas to think about for companies that are eligible for the relief:

  1. Establishing clear divisions in labour - the relief applies to expenditure incurred on designing, producing and testing the video game. To simplify the allocation of expenditure it is wise to separate each stage of the development process.
     
  2. The costs that don’t qualify - initial concept design, debugging and maintenance should be undertaken as cost-effectively as possible to mitigate the fact that they do not qualify as costs for VGTR.
     
  3. Loss separation - it is worth keeping income-generating activities distinct from loss-making activities so that any loss can easily be quantified and used. The ‘surrenderable loss’ as a result of VGTR can provide a cash flow advantage to the business, in the form of a repayable tax credit.
     
  4. Subcontractor limitations - a cap of £1 million applies to the amount of the relief that can be claimed for sub-contracted work carried out.
     
  5. Key deadlines - VGTR claims may be made up to the first anniversary of the company’s filing date for the accounting period in question.
     
  6. The interaction with R & D – many video game companies are also entitled to claim research and development tax relief. However, for SMEs, this cannot be claimed in addition to VGTR, so a cross-benefit analysis of each relief may have to be undertaken when deciding which to claim.  Large companies eligible for the R&D must claim that relief in priority to the VGTR when eligible for both.