Video Games Expenditure Credit

The Video Games Expenditure Credit (VGEC) provides a 34% expenditure credit rate for video games. The expenditure credit will be treated as gross taxable income and appear as other income in the financial statements. You can claim for expenditure from 1 January 2024. 

Video games whose production begins before 1 April 2025 can claim under the VGTR scheme until 31 March 2027. Video games whose production begins on or after 1 April 2025 must use the VGEC scheme from that point.

If you want to claim Video Games Tax Relief, your video game must be certified as British. You must pass the British Film Institute (BFI) cultural test to receive this certification.

To pass the BFI cultural test, complete an online application form for each video game for which you want to claim VGTR. The BFI will assess your application and award points based on the cultural content of the game, its cultural contribution, its cultural hubs, and its cultural practitioners. Each video game must score at least 16 out of 31 points to pass the test.

Myriad employs BFI application specialists who can help you pass this test. Contact us for advice.  

BFI is currently reporting 18-20 weeks to process submitted applications.

Delays may occur if application forms are not correctly completed or need further information. If you need the certificate by a specific date, make sure you apply in good time and specify your deadline date on the application.

A Letter of Comfort: If you’re not yet ready to complete a cultural test application, you can submit a draft application and receive a Letter of Comfort from the BFI. This letter will state that the video game(s) should pass the cultural test. A Letter of Comfort can’t be used to submit a VGEC claim to HMRC, but it is reassuring to have and can help you secure financing.

An Interim Certificate: You can apply for an Interim Certificate if your video game is still in production. An Interim Certificate will be issued once the BFI and the Department of Culture, Media and Sport (DCMS) are satisfied that your video game will pass the cultural test based on the proposals set out in your application.

A Final Certificate: A final certificate proving your game is British will only be issued after your video game is finished and ready for release. Therefore, applications for a final certificate should not be submitted before the video game has been completed. 

The Accountant's Report is required when an application claims points in Section C and/or Section D.

The Accountant's report aims to verify the total and UK expenditure of the work in Section C and the nationality or residence of all persons in Section D. 

The Accountant's Report must be prepared by a person eligible for appointment as a company auditor under section 1212 of the Companies Act 2006.

A report can cost between £500 and £2,000 per application, depending on the video game costs and the number of applications you submit.

The BFI cultural test regulations require you to make a statutory declaration which states that the information you’ve given in your application is accurate.

A statutory declaration is required for both the Interim and Final certifications. 

The statutory declaration must be made before a practising solicitor, general notary, Justice of the Peace or an officer authorised by law to administer a statutory declaration under the Statutory Declaration Act 1835.

Some Video Game Development Companies (VGDCs) may be carrying out research and development alongside their video game development.

A company can claim VGEC and R&D tax relief; however, the two schemes cannot be claimed on the same expenditure. Where VGEC is claimed on a specific cost, the VGDC can’t claim for any other reliefs (including R&D tax relief) for that cost. This means that if a VGDC chooses to claim VGEC, any research and development within the VGEC project wouldn’t qualify.

If a company can separate the R&D work from the video game development into separate projects with distinct expenditures, the two reliefs can be claimed within the same accounting period.

For example, developing an innovative game engine would be claimed under R&D tax relief, whilst developing a qualifying game would be claimed under VGEC. This would be true even if the game engine were used in the game's production, so long as no costs were claimed twice.

VGEC is not State Aid, which means that R&D ‘bubbles’ in video game projects are not precluded from receiving any of the R&D tax reliefs and/or expenditure credits. Your accounting period will determine the R&D tax relief scheme you can claim through.

The key to when core costs can be claimed is knowing when the project was “green-lit”. Initial concept design is usually undertaken to determine whether the video game is commercially feasible. Any expenditure in this stage is speculative in nature. 

Once it is clear that the game development is going ahead, expenditure can be claimed. Some VGDCs may have very little conceptual development before proceeding with production, and some may spend more time assessing the commercial viability of a game.

Commercial activity is no longer eligible; they are activities following the point when a game could conceivably be released to the public (i.e., the minimum viable product, or MVP). This includes all distribution, marketing and finance activity, even if this is crucial to the game's success.

Though game development may not always occur sequentially, claimants need to make an effort to split out conceptual development, production and post-production costs. You must identify which stage of development an item of expenditure contributes to, then determine how much is attributable to that stage.

Game and level designers may mostly be involved in conceptual development but may have some input at the development stages. Similarly, programmers and artists will be primarily involved at the production stage but may still be involved in pre- and post-production for feasibility analysis or debugging.

Core expenditure must be apportioned on a “fair and reasonable basis". There are multiple ways you can define this, depending on the cost. You may wish to explain your methodology to HMRC to ensure you meet this criterion.

As with core and non-core expenditure, you will need to apportion UK and non-UK expenditure. Workers based in a UK office or working remotely in the UK can be included, but workers physically outside of the UK are ineligible. This applies regardless of where the company is based, the worker’s nationality or whether the company is in a group with the claimant.

For some costs that are partly based in the UK, you can choose how to apportion the cost. A staff member that works partly in the UK will only be eligible for the number of days they are working in the UK.

Some non-UK services are indirectly used in video games, such as services supplied by script/dialogue writers, concept artists, composers, and researchers. These are used by the developers and appear in the game having been transformed. HMRC will allow these costs to be included, although they will need to be apportioned based on where they are transformed. For example, suppose a German company provides concept art that is later used by a team of developers. In that case, it must be apportioned according to how many developers are in the UK.