What Is The Video Games Expenditure Credit Worth?

The Video Games Expenditure Credit (VGEC) offers UK game developers a 34% credit on qualifying core production costs. But the headline rate doesn't tell the whole story.

Understanding what VGEC is actually worth, after tax and once the cap is applied, is what determines how much your studio will receive. This post breaks it down.

Before we continue, are you new to VGEC?

If so, why not watch our VGEC Fundamentals Webinar? It covers eligibility, the BFI Cultural Test, and how the scheme works.

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VGEC replaced the previous Video Games Tax Relief (VGTR) scheme as part of the UK government's wider creative tax relief reform. It brings video game development in line with the above-the-line credit model used across the other creative sector reliefs, which changes both how the benefit is calculated and how it appears in your accounts.

What is VGEC worth?

Development companies can claim 34% of their UK-based core costs as an above-the-line credit. The credit is treated as taxable income and is subject to Corporation Tax at the main rate of 25%. The real-world benefit therefore works out at 25.5% of qualifying expenditure.

That's still a material return. A studio spending £1,000,000 on qualifying UK core costs would receive £255,000 back.

How the cap works

The amount you can claim is capped at the lower of:

• 80% of your total core expenditure
• The actual amount of UK core expenditure incurred

In practice, this means you can't claim VGEC on 100% of your costs, even if your entire team is UK-based. The 80% cap applies to your full core cost base, UK and non-UK combined, and whichever figure is smaller is the one used to calculate your claim.

For studios with a predominantly UK-based team, the 80% cap will usually be the binding constraint. For studios with significant overseas expenditure, the UK cost figure is more likely to limit the claim.

HMRC’s policy is to reward UK-based video game development only, unlike VGTR, which allowed companies to claim on costs in the EEA.

Here's what that looks like in practice:

Company A is developing a qualifying game incurs £800,000 in total core costs, of which £700,000 is UK-based. 80% of total core costs is £640,000; actual UK core costs are £700,000. Because £640,000 is the lower figure, that's what the claim is based on.

At 34%, the gross credit is £217,600. After Corporation Tax at 25%, the net benefit is £163,200.

Company B is working on a game with £800,000 in total core costs, of which half is UK-based. 80% of the core costs is £640,000 but only £400,000 are UK-based; this means that the lower figure (the UK costs) is used to make a claim.

The gross credit at 34% is £136,000. After Corporation Tax at 25%, Company B gets a net benefit of £102,000.

What costs can you claim?

Core costs are expenses on designing, producing, and testing your game — but only from the point the game is formally agreed to go ahead (the "green-light") through to minimum viable product. Work done before that point doesn't qualify and neither does anything after the game is complete, like marketing, PR, distribution, and other commercialisation activities.

The largest portion of most claims will be staff and subcontractor costs. Freelancers and agency staff working remotely in the UK are includable, but anyone physically outside the UK is not. Some indirectly used services based overseas can still be partially included but must be apportioned. Rights expenditure can qualify too, provided the rights are genuinely needed to produce the game. HMRC

Because game development rarely happens in neat sequential stages, apportioning costs across eligible and ineligible phases requires care. HMRC expects the methodology to be "fair and reasonable" and consistently applied.

For a full breakdown of eligible phases, cost types, and apportionment approaches, see our detailed guide: What Are Core Costs for the Video Games Expenditure Credit?

How the credit is applied

The credit is first used to offset your Corporation Tax liability for the accounting period. If the credit exceeds your CT liability, the remaining amount can be used to settle other tax liabilities or transferred to other group companies. Any credit still outstanding after those steps is paid out as a cash credit by HMRC.

For every period that you claim for, you must:

1. Calculate total production costs from the start
2. Subtract any previously claimed costs
3. Determine the claim amount for the current period (AVEC rate x qualifying costs)

VGEC is a cumulative scheme. Each time you file, you calculate the total eligible costs of the production from the beginning of the project, then subtract what you've already claimed in previous periods. You can leave your VGEC claim until your game is complete if you prefer, but most companies choose to receive annual credits to improve their cashflow.

Claiming VGEC

You claim VGEC through your Corporation Tax Return (CT600), but there's an important step before that: you must submit an Additional Information Form (AIF) online to HMRC before the CT600 is filed. If the AIF isn't submitted first, the claim won't be accepted.

To support your claim, you'll need:

• A BFI cultural certificate (interim or final) confirming the game qualifies as British
• Statements showing your core expenditure, broken down by category and by UK versus non-UK spend
• A profit and loss account for each video game (each game is treated as a separate trade by HMRC)

Can you claim VGEC and R&D tax relief?

Yes, but not on the same expenditure. If your studio is also carrying out genuine R&D activity, such as developing a novel game engine, that work can be claimed under the R&D tax relief regime as a separate project. The two schemes can sit side by side in the same accounting period, provided the costs are clearly separated and no expenditure is claimed twice.

This is a genuinely complex area. A studio developing a bespoke engine that's then used in a qualifying game, for instance, will need to be careful about how costs are apportioned. You should have robust documentation in place before filing, and it's an area where a poorly structured claim is more likely to attract a compliance check from HMRC.

For more details on VGEC versus R&D Tax Credits, see our guide: VGTR or R&D Tax Relief - Which Should You Claim?

Can you claim VGEC and VGTR?

If your studio has been claiming VGTR and is now moving to VGEC, the transition rules are worth understanding carefully, particularly around key dates and which costs qualify under each scheme.

VGEC is available for accounting periods ending on or after 1 January 2024, and can only be claimed for expenditure incurred from that date. VGTR, meanwhile, is closing in stages: games that began their production phase before 1 April 2025 can continue claiming VGTR until 1 April 2027; games that began production on or after 1 April 2025 must use VGEC.

One material difference to be aware of when moving from VGTR to VGEC is the eligible cost base. Under VGTR, you could claim European Economic Area costs alongside UK costs, provided at least 25% of your total core costs were European. VGEC is UK-only, with a lower minimum threshold of 10% UK core costs.

For a full breakdown of the transition rules, including worked examples of straddling periods and cost apportionment methodology, see our detailed guide: VGEC Transition Rules: What Developers with Ongoing Projects Need to Know.

Key takeaways

• The gross VGEC rate is 34%, but the real-world benefit after Corporation Tax is 25.5% of qualifying UK core costs.
• The 80% cap applies to total core costs, not just UK costs. The claimable amount is the lower of 80% of total core expenditure or the actual UK core expenditure incurred.
• The credit is cumulative. For each period, you calculate total eligible costs to date, subtract what's already been claimed, and apply the rate to the remainder.
• Submit the AIF before the CT600. This step is easy to overlook, but it's a hard requirement.

Studios that get the most from their VGEC claim have got their cost categorisation right from the outset, with clear records that stand up to scrutiny.

If you're planning a claim or want to understand what your studio stands to receive, don't leave it to chance. Contact Myriad to discuss your specific situation with our creative tax specialists.