With tax relief for the games industry apparently off the menu for the time being, one of the next great hopes for government assistance is the R&D tax credit system. Trade association TIGA hopes to increase this scheme's usefulness to the games industry – its detailed proposals are below.
- The scope of R&D tax credits credit should be expanded to include other associated costs incurred in the development of a new game: premises costs, the costs of applying for IP protection and design costs.
- Increase the rate of relief under the SME R&D tax credit scheme from 175 per cent of qualifying expenditure to at least 200 per cent. This would mean that for every pound that an SME spends of qualifying expenditure it would get two pounds of tax deduction which it would use to reduce its corporation tax.
- SME R&D tax relief should be reformed to help loss making companies. At present, loss making businesses receive 24p for every £1 spent of qualifying expenditure. This should be increased to 28p for every £1 spent, so that loss making, R&D intensive firms also share in our proposed rate of relief.
- The claims process should be simplified. For example, HMRC could make more advance agreements of claims so that developers in the games industry and other sectors could have more certainty of what reliefs they are going to receive. Additionally, developers should have a named contact within their HMRC R&D Unit to approach with questions about the eligibility of their costs and activities.
Jason Kingsley, TIGA Chairman and CEO of Rebellion, said: "The UK video games industry is not only R&D intensive, it also employs highly skilled people in an export industry of the future. A typical UK developer generates 62 per cent of their turnover from the export of video games. If the UK Coalition Government wants the video games industry to fulfil its export potential then it must introduce tax reforms including Games Tax Relief and TIGA's enhanced R&D proposals."
Added Mark Gerhard, Jagex CEO, said: "The TIGA proposals would, if enacted, help businesses, promote more innovation and enhance the games industry's competitive edge. I urge all political parties to support these proposals."
Dr Richard Wilson, CEO of TIGA, said: "If we want to strengthen both UK industry and the economic recovery then we must foster an environment for innovation to flourish. We can help create this environment by encouraging investment in R&D. The UK currently invests a lower proportion of GDP in R&D in comparison to G7 countries such as the USA, France, Germany and Japan. At the same time, business investment in R&D in the UK is relatively low compared to other G7 countries. Currently the UK devotes only 1.8 per cent of GDP to R&D.
"The UK computer games industry is an R&D intensive sector using cutting edge technology to create games for a global market. Many TIGA members do use the existing R&D tax credit system. However they tell us that the current system is too narrow in scope and the claims process too complicated. We would like to see the R&D tax credit system work more effectively and efficiently for the UK economy.
"Most games development companies in the UK are small to medium sized and these firms in particular need greater assistance. Under our recommendations the existing R&D tax credit for large firms should be retained. With respect to the R&D tax credit for small firms, the categories of qualifying expenditure should be widened, the level of relief raised, the value of the relief for loss making companies increased, and the claim process simplified.
"TIGA is committed to making the UK the best place in the world to do games business. We will continue make the case for tax reforms, including improvements to the R&D tax credit system and the introduction of Games Tax Relief. We believe these reforms would benefit not only the games industry but also the wider UK economy."