Freelancers’ Questions: Will the client qualify for video game tax credit?

Freelancer’s Question: Are there any further details on the supposedly “generous” tax breaks for British video game developers? A prospective client of mine might be eligible, assuming the tax breaks are still on offer? Everything seems to have gone quiet since the relief was announced in March.

Expert’s Answer: The Treasury recently published the regulations that will be applied to determine whether a video game passes the “Cultural Test” and can, therefore, qualify for the Video Game Tax Credit (VGTC) scheme, which you ask about.

This test will come into force on August 19th, 2014. The Treasury has also confirmed that the VGTC scheme will be effective for expenditure incurred after April 1st, 2014.

The VGTC scheme provides additional tax relief for companies that create video games that meet certain criteria – the Cultural Test.The additional tax deduction can be generous -- up to 80% of the core expenditure on designing, producing and testing the game and, in certain circumstances, a repayable credit equal to 25% of qualifying expenditure can be claimed.

A video game will be assessed by considering a number of different factors relating to the content of the game and to the location of its development. Points will be awarded in relation to a number of different criteria and a game that is awarded 16 or more points (out of a possible 31) will be certified as passing the Cultural Test.

It should be noted that, following negotiations with the European Commission over the details of the scheme, the Cultural Test is not limited to British culture and can now extend across the European Economic Area.

The criteria that will be assessed are:

  • Setting of the game - To what extent is the game set in the UK or another EEA country?
  • Nationality of the characters in the game - How many of the game’s characters are from the UK or the EEA?
  • Whether the game depicts a British or EEA story
  • The amount of dialogue recorded in English or a British regional minority language (e.g. Gaelic or Cornish)
  • The location of the work on conceptual development, design, programming, performing and recording music and vocals, and audio production
  • The nationality and residence of key individuals and teams involved in the production of the game (e.g. project leader, programmer or development team).

You and your prospective client should keep in mind, however, that a game cannot qualify for certification solely on the basis of the location of its development or the nationality of the individuals involved if the game does not have sufficient qualifying content.

In order to apply for certification, the company that is developing the game must submit a statutory declaration together with a list of information specified in the Cultural Test Regulations. This information includes reasons why it is believed that points should be awarded in relation to the criteria listed above.

The expert was Richard Heap, technology, media and telecoms partner at Kingston Smith LLP.


18th August 2014

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