Video Games Tax Relief (VGTR) is one of the range of Creative Tax Reliefs available to UK companies but remains less well known than many of its counterparts, including most notably, the R&D tax credit.
It could be due to the fact that the VGTR was not introduced until 2014 - giving the R&D tax relief a 14 year head-start!
As a result, many video games development companies (VGDC) might simply apply for the R&D tax relief, unaware that there is an alternative that might be better suited to them.
R&D v VGTR: Which tax relief should companies claim?
First things first, a company must be able to demonstrate that aspects of its project work involved the pursuit of technological advancements in the video games development sector and that this advance involved technical uncertainties (that were not readily deducible by a competent video games developer) to claim R&D tax relief.
Applying this two-pronged test might result in the R&D tax relief being a non-starter from the off.
After all, I have little doubt that some of the best and most successful games will be built using tried and tested techniques and technologies. So in this case, the R&D tax relief might not be in point.
There are, however, no such tests of 'technical advancement' or reqs for evidence of 'tech uncertainties' within the VGTR. This makes the VGTR much more straightforward in this respect.
What if there is qualifying R&D in the development of the video game?
Now things get a little more complicated - we need to distinguish between the two R&D tax reliefs:
- SME R&D tax relief
- Research and Development Expenditure Credit (RDEC)
Both the SME R&D tax relief and the VGTR are 'Notified State Aid'. As you may be aware, you can't mix and match State Aid on the same project - it is one or the other.
So a company must choose which relief it is going to claim: SME R&D tax relief or the VGTR. There can be no overlap or double-claiming on eligible costs.
If a company is eligible for the RDEC (mainly large companies or SMEs in receipt of subsidised grant income used on the project), then the RDEC takes precedence.
So if there is qualifying R&D involved in the project work then the company must claim the RDEC relief in priority over the VGTR.
As with most financial decisions, it is often best to crunch the numbers first to work out which tax relief might deliver the best result for the company. We're here to help.