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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: meaning of 'Video Games Development Company'

S1217AB Corporation Tax Act 2009

Video Games Tax Relief (VGTR) is available to Video Games Development Companies (VGDCs) conducting a video game trade. There can only be one VGDC for each relevant video game.

The VGDC is the company that actually produces the video game. The legislation sets out when a company can be regarded as the VGDC. The company must:

  • be responsible for designing, producing and testing the video game
  • be actively engaged in planning and decision-making during the design, production and testing of the video game, and
  • directly negotiate, contract and pay for rights, goods and services relating to the video game.

A VGDC does not need to have direct responsibility for every aspect of all of these activities. Third parties are not prohibited from undertaking some of these activities on behalf of the VGDC.

It is common industry practice to subcontract third parties to deliver certain elements of a video game. This may be activities such as artwork or sound. Alternatively, it might be for specific parts of a game, such as a particular module requiring a different game engine. Where this is the case, the company is not prevented from being the VGDC for tax purposes.

The company must still retain overall responsibility for these activities and have active involvement. A company cannot simply commission the entire video game and hold the creative copyright for the video game.

Subcontractors will not qualify as a VGDC as they are only delivering an element of a development.

If no company meets these requirements for a qualifying video game, then there is no VGDC. Therefore, no VGTR may be claimed for the development.

A VGDC might also have additional responsibilities. This might include the development, marketing and distribution of the video game. There is no requirement that it must do so to be eligible for the relief.

Only one VGDC per video game

There can be no more than one VGDC for any video game.

In some cases it is possible that more than one company will meet the requirements for qualifying as a VGDC. In such circumstances, the company which is most directly engaged in the activities described above will be treated as the VGDC.

The phrase ‘most directly engaged’ is not defined in the legislation. This can only be decided on the facts of each case.

If there is no company which meets the requirement of this definition, then there will be no VGDC in relation to that video game.

Election not to be regarded as a VGDC

Where more than one company has the responsibilities set out above, some of the companies may elect to be treated as not satisfying the conditions set out above in order to establish which of them will be treated as the VGDC for relief purposes. A company can make such an election when making or amending its company tax return.

A company making this election would not be a VGDC. It would therefore be outside the VGTR regime and consequently:

  • would be taxed according to normal principles, and
  • would not be eligible for VGTR.

Any election has effect for all video games starting development in the period to which the return relates or in later periods. The election may be withdrawn by amending the return within a year from the filing date. After this, the election cannot be revoked.

Companies in partnership & co-developments

Although the definition of a VGDC excludes those making video games in partnership, a company is not automatically prevented from being a VGDC because it is a member of a partnership. It is only prevented from being a VGDC with respect to the video game that it is making in partnership. This ensures that the tests are applied to a single company.