Video Games Expenditure Credit – what you need to know

Our recent article covered the Government’s latest changes to the current rules regarding the UK’s audio-visual tax reliefs, specifically looking at the proposed reform of the film and television tax reliefs to expenditure credits. In this piece, we focus on the key points covered by the Government’s draft legislation with specific regard to video games.

Key points

The new tax relief will be known as The Video Games Expenditure Credit (VGEC).

• VGEC will be received net of tax deductions at the main rate of corporation tax (currently 25%), so the net value of the relief will be a credit of 25.5% after deduction of tax.
• Qualifying expenditure under VGEC will be based on expenditure “used or consumed” in the UK rather than expenditure incurred in the EEA.
• The mechanism for apportioning expenditure between UK and non-UK should be a “just and reasonable” basis.
• The 80% cap currently in place under the existing rules will be retained, i.e. UK Core expenditure in excess of 80% of total core expenditure will not attract VGEC.
• UK core expenditure must be a minimum of 10% of the total core budget in order to qualify for VGEC.
• The £1 million subcontracting cap in place under the current rules has been removed.
• A new provision will exclude payments for goods/services supplied by a connected party to the extent they exceed that supplier’s own costs incurred in relation to the supply. Whilst there is a carve-out for costs of renting studios/land/premises, if the legislation is enacted as currently drafted, many other types of supply will fail to attract full relief where the supplier is connected. This could include licensing fees and staff recharges between connected parties.

Transitional rules

• The VGEC rules will be available to companies with accounting periods ending on or after 1 January 2024.
• If a company’s accounting period begins before 1 January 2024 but ends after 1 January 2024, it will have the option to apply existing rules on expenditure incurred up to 31 December 2023 and apply VGEC rules on expenditure incurred from 1 January 2024.
• For projects where video game production begins before 1 April 2025, existing rules remain available up to 31 March 2027.
• Existing rules will not be available to projects where video game production commences on or after 1 April 2025.

The legislation is open to consultation until 12 September. If you’d like to discuss any of the issues raised above, please get in touch with your usual Saffery partner.