TIGA, the gaming industry’s representative body, has announced the introduction of a Games Tax Relief to assist those companies operating in the video game development industry.
It is asserted by TIGA that the relief will contribute up to £188m in extra investment to the UK games industry in the next five years. While the extent of these indirect benefits are not yet clear, what are the direct benefits for those companies qualifying for the relief?
UK registered companies which develop video games for distribution to the public may qualify for the relief, applicable to accounting periods beginning on or after 1 April 2014. The relief does not apply to partnerships or LLPs. Start-ups in the video games sector should note this when considering what structure (incorporated or otherwise) will be appropriate for them. Although the tax advantage ‘tail’ should not be allowed to wag the dog.
The company must be directly responsible for designing, producing and testing the game or contracting and paying for goods and services required in relation to that game. This is presumably to avoid duplicate claims for relief from other organisations because they have carried out development work for the original developer through a sub-contract.
The game in relation to which the relief is applied must have been developed as a game intended for distribution to the public from its inception. It must not have been developed in relation to another technology project and “switched” to a game in order to apply for the relief. Games which were produced for advertising or gambling purposes for not eligible for GTR. It is suspected these were intentionally excluded to prevent the multitude of gambling and bingo websites from claiming the relief on the grounds of limited original artistic or development work.
Not only are there parameters on what qualifies as an eligible game, but also what is eligible spending. The expenditure should not be on developing the initial concept or for general maintenance or carrying out ‘fixes’. All costs incurred in the design, production or development stages of a game are eligible. Having said that, the game must be completed and brought to market in order to qualify; a cancelled project may not qualify for relief.
Presuming that a company’s developed game and its spending is eligible for relief, how can the company benefit?
If a claim is successful HMRC will pay back the amount of relief in the form of a tax credit to reduce the liability to corporation tax (or claim a cash rebate if the game makes a loss). 80% of the total costs of game production can be claimed against. Up to 25% of those costs can be claimed back. The percentage relief applied is calculated on the basis of a points system. Points are awarded as to what extent the game in question is culturally British. HMRC will consider the following:
- the location of the game;
- how many of the game’s characters are from the UK;
- does the game portray a British story;
- if the dialogue is in English or another UK recognised language;
- the extent of the game’s promotion of British culture;
- the number and role of the production staff who are citizens or residents of the UK.
This UK test also extends to consideration of whether the costs will be eligible. The intention is to avoid companies exporting all of the production and development work to other countries and losing those jobs from the UK market.
There are certainly a number of tests to overcome before a company can qualify for the GTR, which may limit how beneficial it will be to the industry in general.
The real concern however may be for the gamers, rather than the developers, should the content and style of games become increasingly homogenised in order to pass the “Britishness” culture test in order to qualify for greater percentages of relief.Kelly Craig Solicitor – Business Services