Qualifying companies can access the VGTR incentive if they are responsible for the majority of the planning, design, development, testing and production of video games.
The VGTR additional deduction can be used to reduce taxable profits. If a company has no profits to reduce, the additional deduction can be surrendered for a physical cash repayment.
What is VGTR worth?
For eligible companies the additional VGTR deduction is calculated as 100% of the lower of:
- Total qualifying core expenditure incurred in the EEA relating to that video game; and
- 80% of core expenditure incurred in relation to that video game.
How it’s calculated
A UK based game developer incurs costs of £1m developing a new game.
85% of all total costs have been identified as ‘core expenditure’ i.e. £850,000
The additional deduction is the lower of:
- Total qualifying core expenditure incurred in the EEA = £850,000
- 80% of total core expenditure incurred in relation to that game = £680,000
- Therefore, the additional deduction is £680,000.
For companies that are ‘loss making’ and have no further profits to reduce. The loss can be surrendered for a payable tax credit. The tax credit is calculated at a rate of 25% of the loss surrendered.
In the example above, a company could be eligible for a physical tax repayment of £170,000 (£680,000 x 25%).
Qualifying expenditure includes spending on:
- Creating downloadable content and other post-release work
- Original concept design
- Post release maintenance
- Marketing and Promotion
There are no minimum or maximum spend thresholds and VGTR is applicable to all qualifying companies.
Does your company qualify for VGTR?
If you have a UK registered company and have been developing your own video game, then the answer will more than likely be yes. The video game has to be British and intended for supply. Additionally, at least 25% of core expenditure is incurred on goods or services that are provided from within the European Economic Area (EEA)
The criteria for qualification are:
The company must be registered for UK corporation tax. Individuals, partnerships and LLPs cannot make claims.The game must be intended for public release and cannot be for advertising, promotional or gambling purposes.
The game must not contain any pornographic or extreme material.
If two or more companies are working on the same game, only one can apply for VGTR. Where there is more than one company meeting the qualifying conditions, the company most directly engaged in the qualifying activities is considered to be the Video Game Development Company.
We’re experienced in working with businesses who want to access government tax reliefs. It’s not just about the numbers, we’ll also help you identify qualifying expenditure and help write supporting documentation for your claim. Get in touch to discuss how we might work together.
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