Developers can now claim video games tax relief in the UK

Out-Law News | 20 Aug 2014 | 2:36 pm | 2 min. read

Developers of 'culturally British' video games can now claim tax relief on some of the production costs in the UK under a video game tax relief scheme which came into effect on Tuesday. 

Under the scheme companies can claim tax credits of 25% off the "qualifying production costs" associated with producing 'culturally British' video games. Developers can apply to industry body the BFI for certification that the games they have produced pass the culturally British test and therefore qualify for tax credits.

The government said it expects the video games industry to save approximately £35 million in total annually as a result of the new scheme.

Culture minister Ed Vaizey said: "The government is acutely aware of the huge contribution that the creative industries make to the UK economy. As part of our long term economic plan we are ensuring that the right conditions are in place to nurture industries like the video games sector, and these tax reliefs are pivotal in ensuring we can compete on a global stage… Our video games companies are already regarded as world leaders, and our ongoing support will ensure they continue to grow from strength to strength."

The cultural test for the new scheme was established to ensure that the tax relief cannot be claimed by producers of video games that are not 'culturally British' and in response to concerns that the original plans for providing tax relief to the UK video games industry breached EU state aid rules.

To ensure fair competition across the entire trading bloc, EU rules place a general ban on member states giving advantages or incentives, whether in the form of tax relief, grants or other forms of state aid, to commercial companies. However, state aid can be justified for general economic development reasons. EU countries must generally apply to the Commission for clearance on a case by case basis before they can offer funding or incentives which amount to state aid.

In March, the Commission announced its approval of the UK government's video game tax relief scheme.

"The UK demonstrated in particular that the proposed cultural test ensures that the aid supports only games that are of cultural value," the Commission said at the time. "Only around 25% of UK produced games would be eligible for aid. Without this support the number of new culturally British games is likely to decline considerably."

Video games trade bodies Ukie and TIGA welcomed the launch of the new scheme.

Dr Jo Twist, chief executive of Ukie, said: "It has taken years of hard work and dedication by many people in the industry and government to create the most innovative, inclusive, and future proof games tax relief scheme in the world at a time when it is most needed. We worked very closely with government to make sure this scheme benefits every type and size of developer, and that it recognises the importance of post-release production in games."

Dr Richard Wilson, chief executive of TIGA, said: "The tax relief will unleash the financial and creative potential of the UK’s game businesses, benefit studios of all shapes and sizes and boost the production of culturally British video games. TIGA’s own research indicates that over five years the tax relief will create and protect 10,300 direct and indirect jobs and create and protect approximately £450 million investment expenditure by UK studios."

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