Video Games Tax Relief is not always easy to understand, which is why we've put together an in-depth guide to making a VGTR claim and passing the cultural test.
VGTR is a simple way for studios to reduce the monetary risk they take when developing a game in the UK or the EEA, as it offers a rebate against production spend.
Our guide is in three parts. If you first want to read an introduction to video games tax relief, head to the VGTR hub page, where you will also find the full table of contents. You can also choose to jump back to the first part, What you need to know about VGTR and the certification process, or to the second part, How to apply for and pass the VGTR cultural test.
Here's what you will find on this page, which is dedicated to making the VGTR claim itself:
- How much can I claim back and on what?
- Is there a budget limit?
- I've outsourced some of the development, can I claim on that?
- What do I do once I have the certification?
- Do I need an accountant?
- Do you have one last bit of advice for me?
How much can I claim back and on what?
Once you have qualified as British, VGTR has a few hard rules about which costs you can claim. There are three main things to remember:
- Some development costs are not taken into account in VGTR -- the aspects that are taken into account form your 'core expenditure.'
- 25% of your core expenditure needs to have been spent on goods and services coming from the UK or European Economic Area (EEA).
- You can claim 25% of 80% of your core expenditure.
"Your eligible costs are the majority of production cost," Fundamentally Games co-founder Ella Romanos says. "You have to work out what those are."
Money spent on game design or testing is eligible, but there are a few exclusions such as concept design, debugging or maintenance.
"Core expenditure is the activities you have to pay [for] to make that game, whether that's for your writers, or for equipment," says Anna Mansi, head of certification at the BFI. "You will be allowed to portion some of the costs of rental for the studio or wherever you're making your game for instance.
"But not to promote the game. So things that would be non-core are marketing, for instance, or debugging. You don't have to do debugging to make the game."
Though we wouldn't recommend making a game without debugging, this is absolutely correct: you technically do not need debugging to make a video game.
"If you were doing debugging, but you were also adding on content while doing so, that would potentially be allowed because it's adding more content to the game," Mansi continues. "Let's say your total budget is £110,000. Let's say that £10,000 of it is your non-core. The rest of it, your £100,000, that's all core expenditures.
"It's what you've paid for -- you've paid individuals, you've paid for equipment, you've paid artists, you've outsourced music. It's all been spent in the UK/EEA. You can then claim 20% of that budget."
Is there a budget limit?
There is no budget limit to apply for VGTR, nor is there a minimum -- whether you spend £5,000 or £4 million on the development of your game, you can apply for VGTR. That's "another of the misconceptions" of VGTR, Ukie's head of policy and public affairs Tim Scott points out.
"There's no limit," he adds. "It's entirely dependent on the size of your budget what you can claim. Look at some of the misinformation which has been bandied about recently, from pressure groups like Tax Watch, which seem to be making out that the big global publishers are taking all of the tax relief. That's not the case. The tax relief is going against the expenditure in the UK or EEA. It isn't a finite pot, if a pot is even the right terminology."
As Mansi previously pointed out, indie developers are the vast majority of the VGTR recipients. As we previously stated though, 25% of your budget needs to have been spent in the UK or EEA.
I've outsourced some of the development, can I claim on that?
Subcontracting is commonplace in the games industry and, depending on how much you spend on it, it can have an impact on your VGTR claim.
"There's a limit of £1 million spend on subcontracting," Romanos says. "So for most studios -- small to medium size -- that doesn't ever become an issue."
Scott points out that this limit is "absolutely fine" for most indies, but "for the bigger developers and publishers, that gets eaten up quite quickly." He adds that Ukie is looking into other options here -- "a sliding cap depending on budget rather than just a hard figure."
Mansi adds that the £1 million outsourcing cap has not really been an issue so far, though.
"To be honest, I don't think I've ever seen it," she says. "So if it's a small company and they have someone in Germany who is going to do the music or some sort of voice over recording work, and it's only £20,000, that's absolutely fine. They can claim on that, as long as the contract and all those services run through the company."
What do I do once I have the certification?
The act of claiming for VGTR is the least painful part of this whole process. All you need to do is complete the "Information about enhanced expenditure" section in the CT600 tax return form.
You must attach your interim or final certificate, as well as some additional documents that are mostly what you've attached to the certification application already -- it is all detailed right here. For instance, you'll need to clarify your total core expenditure and what part of that core expenditure is UK/EEA expenditure.
"I don't think there is any kind of real downsides to VGTR. It's only upsides"
Tom Hegarty, Roll7
At this stage of the process, you should be quite clear on what's needed here, but if in doubt you can reach out to the BFI for help.
Do I need an accountant?
When asked whether or not developers should ask for the help of an accountant throughout the entire VGTR process, Roll7 production and finance director Tom Hegarty replies: "100%, yes."
There are two reasons for that, he adds: "Firstly, it's taxes. And while I've said it's not a complex process, the way it works and the calculations you have to do can be a little complicated. It's good to have an accountant just lay it out for you and then work out how any potential tax relief might work, whether it affects your profit or not and if there's a rebate. It's just good to have the help there.
"And secondly, if you're a smaller developer, you're taking time away from developing a game if you got your head stuck in VGTR. So definitely get an expert in this field."
Romanos adds that you should go "to an accountant who has done it before," as there are certain accountants in the UK who specialise in this type of thing. Hegarty explains that Roll7 actually used an outsourcing company called MMP to help.
"They helped us through the process at first, helped us get all the financial documents together, as well as put the actual certification process together at the BFI," he says. "We learned quite a lot from them. Sometimes it works to have a third party help you out. As we've progressed, we now do a lot of the application process ourselves where we can."
Do you have one last bit of advice for me?
When asked for advice, all of our respondents answered as one voice, loud and clear: talk to the BFI.
"They're actually really approachable and their job is to try and help you get approved," Romanos says. "The biggest challenge I'd say is people thinking that there is an issue. There almost never is any issue. If you've got a question, speak to them and ask them, because actually I've never seen a certificate fail. They are here to help you get through it."
Hegarty confirms that the BFI has "been really helpful" for Roll7, giving the studio pointers when needed.
"They've been able to look at a draft [of our game] as well," he says. "And I think that's really important, to see if they can give you some guidance before you start out. Also talk to other studios who may well have done it and see what the potential issues might be.
"Overall, I don't think there are any kind of real downsides. It's only upsides, I should say. There is some paperwork, there's some accountancy work, some legal work around it, but in terms of what it does, in terms of a tax credit, there's really no reason not to do it because it's going to benefit you."
Our VGTR guide is in three parts. If you first want to read an introduction to Video Games Tax Relief, head back to the VGTR hub page, where you will also find the full table of contents. You can also choose to jump back to the first part, What you need to know about VGTR and the certification process, or to the second part, How to apply for and pass the VGTR cultural test.