Video Games Expenditure Credit (VGEC): A Summary

The UK Government has identified the UK creative industries as a key group for economic growth. The creative industries are seen as a global British success story because of their growth rate being 1.5 times the rate of the wider economy over the past decade. Ambitious plans are in place to grow these creative industries by a further £50 billion by 2030. The Video Games Industry is a key player. 

Part of this plan is the introduction of Video Games Tax Relief’s successor, Video Games Expenditure Credits. We’ve now entered the transitional phase between the two tax schemes, so this seems like a good time to recap the who’s the what’s the when’s and the how’s of VGTR and what changes VGEC will bring.

Video Games Tax Relief (VGTR)

• Eligibility: VGTR is available to companies that produce games certified as British by the British Film Institute, intended for public supply, and meet specific criteria regarding engagement in planning, decision-making, contracting, and expenditure within the UK or EEA.
• Claimable Benefits: Companies can claim an additional deduction to reduce taxable profits or increase losses, potentially lowering Corporation Tax. If a loss is incurred, it’s possible to surrender some or all of this for a tax credit at a rate of 25%. The deduction is the lower of 80% of total core expenditure or the core expenditure on UK/EEA goods and services.
• Claim Period: Claims can be made, amended, or withdrawn up to one year after the company’s filing date.
• How to Claim: Claims are made through the company tax return, supported by evidence such as a British cultural certificate from the BFI, statements of core expenditure split between the UK/EEA and other, and a breakdown of expenditure by category.

Video Games Expenditure Credits (VGEC)

• Eligibility: VGEC shares many eligibility criteria with VGTR but with a key change regarding expenditure on goods used and consumed in the UK. A minimum of 10% of expenditure must be used and consumed within the UK.
• Claimable Benefits: The VGEC rate is 34%, received net of tax deductions at the main corporation tax rate, resulting in a net value of 25.5% after tax deduction. The 80% cap on expenditure remains, but the £1m cap on subcontractor expenditure is removed.
• Claim Period: VGEC applies to companies with accounting periods ending on or after January 1, 2024. For projects starting before April 1, 2025, existing rules apply until March 31, 2027.
• How to Claim: VGEC is calculated from a game’s qualifying expenditure through the company tax return, differing from VGTR as it’s not an adjustment to taxable profit but calculated directly from qualifying expenditures.

These incentives reflect the UK’s commitment to supporting the video game industry, encouraging investment and development within the country by easing the financial burden on companies engaged in creating video games. Companies looking to benefit from these schemes must carefully adhere to the eligibility criteria and ensure proper documentation and evidence are provided when making a claim.

A cause for a change in strategy?

Here are a few strategic considerations. It’s not an extensive list, but one that should help you consider the impact of these changes on your studio.

• Forecasting – It’s vital for studios who wish to succeed to prepare robust financial forecasts so these tax changes should be considered and implemented where necessary so that you’ve got a complete picture without any unwanted surprises. 
• Your people – It’s clear that the UK Government’s introduction of VGEC is an attempt to bring innovation and growth on shore so you should consider who is working for you and where work is being performed. But be careful not to pin your entire strategy on maximising your tax savings, especially if the overall quality of your game will be impacted or the cost of labour abroad is less than the tax saving you’ll make.
• Plan B – The introduction of the new scheme might not be well received by all. Whether this change will have a positive or negative impact on your studio should be established as soon as possible and alternative plans should be put in place to ensure you are maximising your tax saving until the cessation of VGTR.   

Get in touch

To explore how Video Games Tax Relief (VGTR) and Video Games Expenditure Credits (VGEC) can benefit your project, or if you have any questions regarding eligibility, claimable benefits, or the claim process, we encourage you to get in touch with us.