Video Games Expenditure Credit (VGEC)

Eligibility and Qualifying Criteria

A VGDC is responsible for the design, production, and testing of the video game.

To be eligible, the VGDC must actively participate in planning and decision-making and must negotiate, contract, and pay for rights, goods, and services related to the video game.

A “video game” is defined as an electronic game produced by a computer program and played through a user interface or device.

To qualify for the VGEC, a video game must meet the following conditions:

• It must not be for advertising, promotional, or gambling purposes.
• It must be intended for supply to the general public.
• It must be certified as “British” by the British Film Institute (BFI).

• It must meet the UK expenditure requirement, meaning at least 10% of the “core expenditure” on the video game development must be “UK expenditure.”

The VGDC does not need to be the company that supplies the game to the public and it is permissible for the VGDC to develop the game under contract. Only one VGDC can be associated with a particular video game.

Certification and Cultural Test

To be eligible for relief, a Video Game needs certification from the British Film Institute (BFI) that it is a British game.

The BFI cultural test has a pass mark of 16 points out of 31, covering cultural content, contribution, hubs, and practitioners.

This test evaluates various aspects of the video game, including its cultural relevance, the involvement of UK-based talent, and the use of UK-based facilities and services.

The BFI will issue interim and final certificates depending on the game’s completion status.

Depending on the sections points are scored in, it may be necessary to obtain an independent accountant’s report before the BFI will issue a final certificate.

Qualifying Expenditure

Relief is available based on the core expenditure incurred on the game.

Core expenditure includes designing, producing, and testing a video game but excludes initial concept development, debugging, and post-completion maintenance. Core expenditure is considered UK expenditure if it is incurred on goods or services used or consumed in the UK.

The VGEC is calculated by applying 34% to the lower of 80% of total core expenditure less excluded costs and the amount of core expenditure that is UK expenditure. Excluded expenditure is expenditure that is eligible for R&D relief and non-arm’s length expenditure with connected parties.

Operation of VGEC

For tax purposes, the development of the Video Game is treated as a separate trade. This trade commences at the design stage or when income is first received, if earlier. Specific rules govern the determination of trading profits and the use of losses.

Once calculated, the VGEC is treated as a taxable receipt in calculating the profits of the separate development trade. There is then a six-stage process for how the VGEC is to be utilised.

Administration

Claims must be accompanied by an Additional Information Form (AIF) submitted to HMRC before the corporation tax return.

The AIF includes the video game’s name, start date of development, detailed expenditure breakdowns, details of connected party transactions, and a copy of the British Film Institute certificate.