Game Republic Affiliate Member – Plus Accounting Chartered Accountants kindly gave us their take on the latest budget announcements in March 2023 and in particular the new reforms of Video Games Tax Relief. Luke Thomas (pictured) shares his assessment here:
The UK Games Industry has been given a major boost with the announcement in the budget that the Video Games Tax Relief (VGTR) is being replaced with a new ‘Video Games Expenditure Credit’ from April 2025.
The existing Video Games Tax Relief has been in place since 2014, in which time the UK Games Industry has witnessed significant growth. The UK government has clearly identified the Games sector as a key part of the UK economy and wishes to provide specific support to ensure it continues its success.
The government recently issued proposals to reform VGTR with the aim of modernising the relief, maximising the industries impact on the UK economy, simplifying the claims process, and preventing abuse of the relief.
There are several features of VGTR that are changing, some of which will have a significant impact on UK Games companies and the relief they can claim.
The key changes are:
- The headline rate of relief is increasing to 34% from 25% under the current VGTR.
- Qualifying Core Expenditure will only be available on goods and services ‘used or consumed in the UK’, as opposed to the existing rules which allow for costs incurred within the European Economic Area.
- The cap on qualifying expenditure will be held at 80%.
- The current £1million cap on subcontractor costs (per game) will be removed.
The government has made it clear that any games in development prior to 1 April 2025, can continue to use the existing scheme until April 2027. However, any expenditure credits available under the new rules can be claimed from 1 January 2024.
A brief look at the numbers suggests that under the new rules, the relief available will be the same whether the company is profit or loss making.
Under the current rules a profit-making company attracts relief of 80% x 19% = 15.2% on the qualifying costs it incurs, whereas a loss making company attracts relief of 80% x 25% = 20% on its qualifying costs.
Under the new tax credit rules both a profit or a loss-making company would attract circa 20% tax relief by way of either a corporation tax saving or repayable tax credit, which seems fair, but not quite as good as the headline 34% rate of relief might initially lead you to believe.
There are clearly some concerns with the removal of EEA expenditure qualifying for the relief and some will need to factor this into future plans. For some, careful consideration of structures in place will be needed once details of the Anti-abuse measures are clarified.
Overall, this should be seen as a significant boost to the UK Games Industry. It gives recognition of the importance of the sector to the UK economy, certainty of the changes coming into effect well in advance to enable planning and a guarantee of ongoing financial support for the foreseeable future.
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