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HMRC internal manual

Video Games Development Company Manual

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HM Revenue & Customs
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Taxation: separate trade - cessation

Where a company is a Video Games Development Company (VGDC) (VGDC10110) for the purposes of Part 15B Corporation Tax Act 2009, the development of each video game (VGDC10100) is treated as a separate trade. This isolates the development of each video game on an individual basis for the purpose of calculating profits and losses.

The point at which this trade starts is determined by special rules (VGDC20100) but, once set up, the normal rules apply for when a trade ceases. Guidance at BIM70565 onwards sets out the normal cessation rules.

The question of whether any trade has ceased is a matter of fact. A VGDC’s trade may include:

  • exploiting a video game (see VGDC20210),
  • selling a video game, and all the rights in it, for others to exploit, or
  • making video games under contract to another person such that it never holds any of the rights.

In cases where a video game, and all the rights in it, is sold outright, it will be easy to determine the point where the trade ceases.

The point of cessation may be less clear where some or all of the rights in the video game are retained by the VGDC. Broadly speaking, a trade ceases when the VGDC no longer actively exploits, nor has any expectation that income will arise from, the video game rights.

Where a VGDC retains rights to enjoy future income from the video game (possibly coupled to an obligation to make further deferred payments out of those receipts) that income is regarded as deriving from the ongoing trade of video game development relating to that trade. This is the case even where receipts follow a ‘stagnant’ period during which no income was received. The receipts will not relate to any new trade, nor will they be treated as non-trading (investment) income.

If a trade ceases, the VGDC may be able to use losses under Video Games Tax Relief (VGTR) by using the special terminal loss rule, see VGDC30040.