We have already covered most of these (read more here), but one tax scheme change meriting further discussion is a large change affecting video game developers. Like other audio-visual tax incentives for films and TV, the Video Game Tax Relief (VGTR) scheme is to become an above-the-line expenditure credit. This comes after the successful launch of an expenditure credit for the R&D tax incentive scheme in 2013.
The expenditure credit will change the way that relief is calculated. It will be calculated directly from qualifying expenditure instead of being an adjustment to the company's taxable profit as under the existing regime. This has the benefit of providing a consistent benefit level whereas with the previous scheme the benefit was dependent on the profit/loss level of the claimant.
For accounting periods starting after 1 January 2024, the headline Video Games Expenditure Credit (VGEC) rate will increase to 34%. As is often the case with headlines, this doesn't provide the whole picture. For profitable businesses, paying tax at the new main rate of corporation tax of 25%, their benefit will increase from 16% to 25.5%. For loss making businesses, it'll increase from 20% to 25.5%
However, one significant and under reported change to the scheme is that European Economic Area (EEA) expenditure will be excluded from the qualifying costs of the VGEC. Only expenditure incurred on goods or services used or consumed in the UK will be allowable. In an effort to assist with the transition to VGEC, the Government will allow games in development on 1 April 2025 to continue to claim European Economic Area (EEA) expenditure under VGTR until April 2027
Another positive change is that the scheme will no longer have a £1m per game cap on subcontracting costs but this will only impact the largest games so will not help most claimants.
As with the former VGTR scheme, UK-based video game developers are required to meet the same onerous conditions in order to qualify. A notable one was that the product must be certified by the British Film Institute (BFI) as 'culturally British'.
It is important to note that those stipulations remain unchanged for VGEC. In fact, the amount of paperwork and hoops to jump through will only increase. In the future, the scheme will be claimed "above the line" in the companies accounts as income. This is in addition to the mountain of paperwork and documentation required for each BFI certification. Due to the complexity and oppressive requirements, small studios are likely to suffer from a lack of specialist advice and expertise.
MMP has been relieving video game developers from the burden of the claims process since VGTR's inception. We are fully informed in regard to the new scheme, and we are equipped to continue doing all the heavy lifting for those wishing to benefit in the future.