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R&D Tax Credit change can benefit developers - Sheridans

Amendment to system in Pre-Budget Report could have "significant impact" on industry, says law firm

While yesterday's Pre-Budget Report yielded no specific mention of support for the videogames industry, there was one amendment included in the full document that could have a significant benefit to developers in the UK.

The R&D Tax Credit system will be changing to remove the requirement for applicants to own the intellectual property being worked upon, which theoretically means that companies not solely working on 'culturally British' developments are entitled to apply, says Sheridans' Alex Chapman.

"There are two main qualifying criteria for R&D Tax Credits," he explained to GamesIndustry.biz. "Firstly, that the R&D project 'seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty'; and secondly that the developer 'must own any intellectual property that might arise from the project'.

"The work undertaken by games developers is inherently innovative and necessarily involves research and development. Therefore developers have generally always satisfied the first criteria. However because most large scale games development in the UK is work-for-hire, a significant proportion of the R&D that many UK developers undertake does not satisfy the second criteria.

"Generally-speaking these developers will own their underlying development tools, technology and know-how and will have a right to claim in respect of certain other IP that they have created. However in large scale developments they are required to transfer everything else to the commissioning publisher - this can therefore remove a significant proportion of the research and development spend from the tax credit claim or else creates difficulties in persuading HM Revenue & Customs over the level of tax credit a developer should receive.

"For all developers with an accounting period ending after 9 December 2009 there is no need to own the IP and therefore the potential claims may be substantially increased," he added.

A more detailed examination of the potential implications, as well as advice on how to approach Tax Credits claims, will be published next week.