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HMRC internal manual

Video Games Development Company Manual

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HM Revenue & Customs
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Overview and general definitions: introduction

Part 15B Corporation Tax Act 2009

Sch 17 Finance Act 2013

Finance Act 2013 introduced a new relief for the video game industry, Video Games Tax Relief (VGTR).

The legislation on video game development provides specific rules for relief on video games in addition to rules for calculation of profits and losses of video game developments.

Tax treatment

For tax purposes only, the legislation:

  • deems that the development of each video game is a separate trade with a start and end date separate to that of the company,
  • describes what income and expenditure is eligible for additional tax relief and circumstances where there are exceptions to the normal rules for income and expenditure, and
  • restricts the use of losses associated with that trade in certain circumstances.

The new rules apply to expenditure on relevant video games by a Video Games Development Company (VGDC) (VGDC10110). If there is no VGDC for a video game, then the rules do not apply. This might be because:

  • no company meets the required criteria, or
  • the company has elected to be treated as not meeting the criteria.

Video Games Tax Relief (VGTR)

VGTR applies to VGDCs engaged in the making of:

  • a British video game (VGDC40030),
  • that is intended for supply (VGDC40020), and
  • at least 25% of core expenditure (VGDC50010) is incurred on goods or services provided from within the European Economic Area (VGDC50050).

Those VGDCs that are entitled to VGTR can claim:

  • an additional deduction in computing their taxable profits (VGDC55010), and
  • where that additional deduction results in a loss, to surrender losses for a payable tax credit (VGDC55100).

Both the additional deduction and the payable credit are calculated on the basis of EEA core expenditure up to a maximum of 80% of the total core expenditure by the VGDC. Core expenditure is expenditure on design, production and testing.