8 out of 10 Developers unaware of this recently introduced tax break
- 8 out of 10 Video Games Developers unaware of recently introduced tax break “Video Games Tax Relief”, which came into force on 1 April 2014.
- Cost of missed tax break to Games Developers estimated to be £15m.
- HMRC principally blamed for lack of awareness.
You may have seen some of today’s press coverage of our recent survey, which highlights the depressingly low level of awareness amongst developers of the Government’s new tax break specifically designed to help the UK’s Video Games industry. Here are some of the facts that we found most staggering:
- 82% of respondents were not aware of Video Games Tax Relief (VGTR) or that their company may qualify for a Cash Rebate, even though it has been effective for nearly six months.
- Of those that were not aware of VGTR, two thirds of respondents blamed HMRC for the lack of awareness of the new tax scheme. A significant minority thought their accountant was at fault.
- Of the small percentage of respondents who were aware of VGTR, only two respondents were able to confirm the stiff requirements that must be met to qualify.
This is a shame because we think the scheme is long overdue and could really help the UK economy. Here’s some reasons why:
- A similiar scheme has operated in the UK film industry for many years and is widely considered to have been a success.
- The UK games industry is estimated to be worth around £2bn (and growing).
- The vast majority of games developers are SMEs, which are the starting point for long term growth.
- Similiar schemes targetted towards the video games industry in other countries (such as Canada) have proved popular.
Why does it matter?
This is a clever way to boost skills, growth and employment in a fast growing industry in which we are a World leader. If we fail to shout about these excellent initiatives and encourage companies to make use of them, what is the point of introducing them?
HMRC’s published research shows that tax inspectors expect the scheme to be £15 million lower this tax year than in subsequent years, due to lack of awareness. (You can see for yourself by looking at HMRC’s “Video Games Tax Relief”, Summary of impacts, http://www.hmrc.gov.uk/tiin/2012/tiin2060.pdf )
Whilst this tax break came into effect on 1 April this year, it was first announced back in 2013, so there should be much greater awareness of this fantastic opportunity to claw cash back. The lack of promotion of the VGTR scheme is ridiculous and self-defeating. The survey demonstrates the need for HMRC, the accountancy profession and Games Developers’ organisations, such as TIGA (The Independent Game Developers’ Association) to increase awareness of this new scheme.
How can Video Games Developers help themselves?
Due to the complexity of the VGTR, it’s really important that Games Developers start working with their accountants and tax advisors as soon as possible, otherwise they may find that their expenditure does not meet HMRC’s requirements. Given that you can only claim once for expenditure (either under R&D Tax Credits or Video Games Tax Relief), it’s important to start reviewing expenditure early on to avoiding limiting the claim later down the road.
How does Video Games Tax Relief work?
VGTR is available for expenditure incurred from 1 April 2014. If the company qualifies to claim VGTR it will be entitled to an additional deduction in computing its taxable profits. Where an additional deduction results in a loss, the company will be entitled to surrender losses for a payable tax credit (i.e. a cash rebate).
A company will be entitled to claim VGTR if:
- The video game passes the ‘cultural test’. The Treasury has published detailed regulations that will determine whether a video game passes the ‘cultural test’.
- The video game is intended to be sold.
- At least 25% of core expenditure incurred making the game is from within the European Economic Area (EEA). Core expenditure includes designing, producing and developing the video game. However, it does not include expenditure incurred in designing the initial concept for the video game or carrying out maintenance (and/or debugging) in connection with a completed video game.
About Metric Accountants:
Metric is the only London-based professional accountancy firm to focus solely on providing specialist tax and finance advice to high growth companies and tech start-ups. It is for this reason that Metric has been described as “The first choice for London’s innovative companies”.
If you would like to learn more about Video Games Tax Relief (or similiar schemes, such as R&D Tax Relief and Patent Box), then contact James Richardson on 0203 542 4991.