Video Game Tax Relief: An Indie Primer
Video Game Tax Relief (VGTR) is a concept that at first can be overwhelming to an independent developer – it’s finance, and you didn’t sign up to be an accountant, you’re here to make games! But through the magic of paperwork, VGTR can help you realise your game development dreams by reimbursing a percentage of your development expenses. The purpose of this post is to give you a brief overview of what VGTR is intended to do, why you should consider claiming for it, and some considerations to be aware of throughout the process, including the Cultural Test.
Put simply, VGTR is a British governmental tax measure, allowing game development companies in the UK to claim back up to 20% of their creation costs for interactive entertainment projects. The 20% only applies to eligible costs relating to the project, so it’s important to have a clear understanding of which costs are eligible for claiming back, and how to identify them within your project, in order to make a successful claim. Taking the time to find a good accountant, with a solid track record, will pay dividends.
There are three parts to a successful VGTR claim: the structure of the company, the structure of the claim, and the structure of the project.
The Company
Arranging the structure of the company correctly to align it with the needs of a VGTR claim will save a huge number of headaches further down the line. You can find out about options such as setting your company up as SPV (Special Purpose Vehicle) to effective partition off a chunk of your costs as only being oriented toward the project. Even if the main company goes bankrupt, the SPV is protected, and this helps your VGTR claim, as well as giving reassurance to any investors who might want to invest in your VerySafeBet: Bird Thrower 3000 title, but steer away from the less commercially secure Game About My Feelings you are also working on a side project. It also protects you - in case Game About My Feelings is suddenly a runaway critical success, you won’t have investors suddenly claiming that they are also owed a piece of that pie! And the more straightforwardly things are structured, the higher the chance of your VGTR claims being processed quickly and paid correctly.
The Claim
This is the point at which it makes sense to call in a specialist accountant with direct experience in this area. They can help you structure your claim so that you don’t underclaim, or worse, overclaim. Under-claiming will lose you money, over-claiming will get you in trouble with HMRC. VGTR is not an R&D tax credit – make sure your accountant is clued up! The claim needs to be structured really clearly and unambiguously by someone who really knows what they are talking about in order to make it through the application process. If HMRC suspects that something is being hidden, or obfuscated in any way, they will reject the claim, and may even investigate your company. Video-games are a strange and confusing interdisciplinary subject at the best of times, so it’s easy for people on both sides of the regulatory line to make mistakes, so work cooperatively with a recognised expert in the field to ensure you get the best outcome.
The Project
In order to successfully claim VGTR, the project against which the claim is being made must pass an exam, call the Cultural Test. Whilst many independent games creators may panic about the test, it is in reality pretty easy to pass the test’s requirements. All you have to prove is that the project is culturally aligned with the British Isles in some measurable way, such as by it’s theme and subject matter, or by the composition of it’s team. You do not have to crowbar red telephone boxes into your game unnecessarily in order to become eligible! A mere 16 points are required in order to meet the minimum threshold, and with 4 of those points offered immediately just for producing the game’s dialogue text,s spoken, written or narration all count, in English (it doesn't even specify that it has to be British English!) developers should feel reassured that the test is not an onerous burden to fulfil.
All of this may well seem like a lot of work, but in reality, it’s relatively straightforward. Most games will pass the cultural test without any additional effort, and any true “work” relating to the tax relief should be performed by the accountant you hire. 20% of your eligible expenditures can really add up over time into a tidy sum, and it’s quick to claim too; a properly structured claim can be granted in as little as three weeks in some instances. But there are other benefits too. Already having 20% of your financing in place can help you attract additional investors, as – as far as they are concerned – the project is already part-funded. This both helps them spread their risk and gives them confidence that they do not need to helicopter over you in order to safeguard their return - a confident investor is an investor more likely to give you money, give you more money if you need it, and then leave you alone whilst you spend that money. In short, VGTR offers a valuable and low-stakes pathway for independent developers to claw back funds to reinvest into their game or team, and should be a serious consideration for all games creators in the UK.
Useful Links:
http://www.bfi.org.uk/sites/bfi.org.uk/files/downloads/bfi-british-film-certification-cultural-test-for-video-games-guidance-notes-2016-03.pdf
https://www.gamesindustry.biz/articles/2017-06-21-six-ways-to-make-the-most-of-video-games-tax-relief
https://www.grantthornton.co.uk/globalassets/1.-member-firms/united-kingdom/pdf/publication/tiga-a-guide-to-video-games-tax-relief.pdf
