How Could the Video Games Expenditure Credit Be Improved?

UK game development is in decline for the first time in over a decade. Here's what the industry is proposing to strengthen the Video Games Expenditure Credit, and what it could mean for studios.

The Video Games Expenditure Credit (VGEC) gives UK studios a 34% credit on qualifying core production costs, worth 25.5% once Corporation Tax is applied (see What Is VGEC Worth? for the full breakdown). For most of the scheme's short life, that rate has been the main point of discussion. But the conversation has moved on.

The UK games development sector has just recorded its sharpest decline on record, ending 14 consecutive years of growth, and industry bodies are now asking the government to go further.

How is the video game industry doing?

The numbers are stark. In the year to September 2025, the UK games development sector lost 1,537 net jobs, a 4.5% fall and the first decline since 2011. That's the steepest drop TIGA (the UK’s games trade association) has recorded since it began tracking the data.

The detail behind that figure is worth noting too. 491 companies cut a combined 3,655 full-time development roles, while 513 companies that grew over the same period added only 2,751 jobs between them. More businesses are losing staff than gaining it, and the losses are larger.

Start-up activity tells a similar story. New studio formation has fallen for the third consecutive year running, from 281 new companies to just 137, the lowest level in 15 years. Fewer new studios means fewer future employers, which makes the current job losses harder to recover from.

Boosting the UK video game industry

The case for stepping in goes beyond development jobs, important as those are. UK studios sit at the centre of a wider ecosystem, including publishing, localisation, audio, QA, marketing and the supporting roles that keep a production running. Championing studios and developers strengthens all of that at once, not just the headline employment figures.

There's an export dimension too. UK-developed games are sold into a global market, and the UK's domestic games consumer market alone was worth £7.82 billion in 2023, up 4.4% on the previous year. A stronger development base feeds that export potential directly, since most UK studios are building for international audiences from the outset.

IP exploitation matters as well. A successful game isn't a one-off sale; the underlying intellectual property can generate revenue for years through sequels, expansions, merchandising and adaptations into other media. Studios that survive long enough to build and retain that IP are the ones that compound these benefits, rather than studios that close before a title finds its audience.

This is also where the return on government support becomes clearer. The current VGEC baseline already supports an estimated 15,684 FTE jobs and £1,259.3 million in GVA (2024-25). Nordicity's modelling for Ukie's proposed reforms (more on this below) projects a combined return on investment of £1.87 for every additional £1 spent on VGEC by Year 5, made up of £1.44 in additional GVA and £0.43 in additional tax revenue. The question the proposals raise is how much further that could go with the right level of support.

Could VGEC do more for smaller, independent studios?

TIGA's headline proposal is to raise VGEC to 53% on 80% of qualifying costs, for projects with budgets up to £23.5 million. That's a significant jump from the current 34% rate, and the structure isn't unfamiliar; it mirrors how the Independent Film Tax Credit works as an enhanced version of the Audio-Visual Expenditure Credit for smaller-budget films. The IFTC offers a 53% gross rate (39.75% net after Corporation Tax) on productions with core budgets of up to £23.5 million, the same threshold TIGA has proposed for games.

TIGA's own modelling suggests the impact would be substantial: an additional £482 million in Gross Value Added and 6,952 new jobs. Against a current rate of 34%, a move to 53% on the same cost base would represent a genuinely material increase in support, not a marginal adjustment.

A higher-rate option for bigger productions

Ukie, the UK’s games trade body, has taken a more detailed approach, commissioning economic consultancy Nordicity to build a full business case for what it calls "VGEC+". Rather than a single new rate, the proposal works in two tiers:

• For productions with budgets up to £10 million, a "Games Growth Rate" of 53% would apply, within the existing 80% cap on qualifying expenditure. This is close in shape to TIGA's proposal for smaller projects, though TIGA's £23.5 million threshold reaches further up the budget scale.
• For productions with budgets above £10 million, an "Enhanced Primary Rate" of 39% would apply to 100% of qualifying expenditure, removing the 80% cap for this tier only.

Combined, Nordicity's modelling projects that by Year 5 this package would add £529.5 million in GVA annually, generate £158.1 million in additional tax revenue, and create 5,969 jobs (2,550 direct, 2,027 indirect and 1,393 induced). The return works out at £1.87 for every additional £1 of VGEC disbursement.

Competitiveness is central to Ukie's case. Nordicity calculates VGEC's current "effective rate" (claim value as a proportion of total development spend) at just 14%, the second lowest of seven comparator jurisdictions. Ukie's combined proposal would lift the UK's effective rate to 20.6%, putting it at the top of that comparison.

Current VGEC vs. the reform proposals

Wider sector support: the UK Games Fund

VGEC reform isn't the only lever being discussed. The government has already announced a £30 million funding boost for the sector, with £28.5 million going to the UK Games Fund as part of the Creative Industries Sector Plan. That's effectively a doubling of the fund, split across three tracks: an Entry Track offering up to £20,000 for newly formed companies, an Emergent Track of up to £100,000 for prototyping, and an Expansion Track of up to £250,000.

The question for policymakers is whether this kind of direct support gets expanded further, in scope or in budget, alongside any changes to VGEC itself.

How does the UK compare internationally?

Ireland's Digital Games Tax Credit offers a 32% refundable credit, capped at €25 million per project, one of the highest project caps anywhere. Budget 2026 extended it further to cover post-release content for games that already benefited from the credit.

France's video games tax credit sits at 30% of qualifying expenditure for comparison.

Canada is part of the picture too, although the credit is offered by province, not federally. British Columbia and Quebec illustrate how differently a games incentive can be built. British Columbia's Interactive Digital Media Tax Credit is a refundable credit worth 25% of eligible salaries and wages incurred from 1 September 2025 onwards. That's a significant increase, but the credit applies only to labour costs, not the wider range of production expenditure VGEC covers.

Quebec's Multimedia Tax Credit takes a different approach again. Commercial titles in languages other than French currently qualify for 30% of eligible labour and subcontractor costs, with 100% of non-arm's-length subcontractor costs and 50% of arm's-length subcontractor costs counting towards the claim; French-language commercial titles qualify for 37.5%. From 2025, though, a growing share of that credit is shifting from refundable to non-refundable.

Neither Canadian programme maps directly onto VGEC, since both are calculated on labour costs rather than total qualifying core expenditure. But the direction of travel in each is worth noting. British Columbia has just significantly raised its headline rate, while Quebec is trading away some refundability for a higher nominal figure. Nordicity's effective-rate analysis for Ukie places Quebec (18.2%) and Ontario (15.8%) ahead of the UK's 14%, with British Columbia (6.6%) behind it.

What would these changes mean for studios in practice?

The easiest way to see the effect is to run the numbers.

TIGA’s 53% Credit

A studio with £5 million of UK core costs claims VGEC at the current 34% rate; with the UK costs cap, they can claim on 80% of their costs (£4 million). The gross credit is £1.36 million, and after Corporation Tax at 25%, the net benefit is £1.02 million (25.5% of their qualifying costs).

Under TIGA's proposed 53% rate, the same £5 million in qualifying costs with an 80% cap would generate a gross credit of £2.12 million, with a net benefit of £1.59 million (39.75% of their qualifying costs).

Ukie’s 39% Enhanced Relief

A larger studio has £20 million in total UK core costs. The 80% cap limits the claim to £16 million (80% of £20 million). At 34%, the gross credit is £5.44 million, and the net benefit is £4.08 million.

Under Ukie's proposal, with no cap and a 39% Enhanced Relief rate applying to the full £20 million in UK core costs, the gross credit rises to £7.8 million, with a net benefit of £5.85 million. That's an additional £1.77 million, driven by both the higher rate and the removal of the cap.

Key takeaways

• The UK video games industry is in a decline. We have seen a 4.5% fall in development jobs, the first since 2011, alongside the lowest level of new studio formation in 15 years.
• TIGA's proposal targets smaller productions. A 53% rate on 80% of qualifying costs for projects up to £23.5 million, modelled to add £482 million in GVA and 6,952 jobs, mirrors how the Independent Film Tax Credit enhances AVEC for smaller-budget films.
• Ukie's proposal targets larger productions. A 39% Enhanced Relief rate for projects over £10 million, with the 80% cap removed entirely, aims to make the UK the most internationally competitive offer for AAA-scale development.

As with the current scheme, any future version of VGEC would still be applied to qualifying UK core costs incurred during the eligible phases of production, from green-light to minimum viable product.

Worth being clear: these are proposals, not legislation. Nothing changes for claims being filed today, and the current 34% rate and 80% cap still apply until any reform is confirmed.

If you'd like to discuss your studio's current VGEC claim, or how any of these proposed changes could affect projects you're planning, contact us to talk it through with our creative tax specialists.