18 September 2014
Rather than certain elements of the media’s conflated characterisation of current immigration and social welfare policies, this could be how Video Games Tax Relief (VGTR) is summed up. If only it was that simple…
Our last post discussed the British cultural test and getting through that could be seen as successfully negotiating a path through Level 1.
Level 2 considers whether the company making the claim is a Video Games Development Company (VGDC)? In producing a video game there may well be more than one company involved, so this level pits collaborating entities against one another to see which of them wins through to the next level. Of course, there’s not automatically a winner and all of the competing companies could fail. However, it’s necessary to assess which company meets the VGDC criteria in relation to a particular game, namely:
- Who is responsible for designing, producing and testing the game?
- Who is actively involved in planning and decision making during the above activities?
- Who negotiates the contracts and pays for rights, services and goods connected with the game?
- If there is more than one company meeting the criteria, have any elected not to be the VGDC for this game?
Once a company has burst through the finishing tape and secured its status as a VGDC, then the ordeal of Level 3 is faced – is there a video game for VGTR purposes? Only two hurdles to be overcome here – is it intended to supply the game to the general public and is the game produced for advertising, promotion, or gambling purposes? Answer ‘Yes’ to the first and ‘No’ to the second question and Level 4 is in sight.
This level considers the expenditure on which VGTR is being claimed and introduces the concept of core expenditure, which is expenditure incurred on pre-development, principal photography and post-development. At least 25% of the core expenditure must be UK expenditure and the expenditure on which VGTR can be claimed is the lesser of the UK qualifying expenditure and 80% of the total qualifying expenditure. Just as the objective is about to be reached, a trap door opens that asks if any of the expenditure is eligible for Research & Development relief. Only a ‘No’ will get the final prize, with a ‘Yes’ meaning that the player should have been playing a different game!
Having got through all that, what’s the prize? In calculating its taxable profits, the claiming company can uplift its eligible expenditure by 100%, thus reducing its corporation tax bill. If the uplift creates or adds to a loss, then that loss can be cashed in for tax credit.