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HMRC internal manual

Video Games Development Company Manual

HM Revenue & Customs
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Taxation: profit/loss calculation - expenditure - timing

S1217BA, S1217BD Corporation Tax Act 2009

The rules for the timing of expenditure recognition ensure that costs are recognised when they are represented in the state of completion of the video game and, in particular that:

  • prepayments (where payments are made in advance of the goods or services being supplied) are not recognised until the work has been done; and
  • deferrals (where work is done or services supplied for promise of payment in the future) are recognised earlier so long as the obligation of future payment is unconditional.

There are additional anti-avoidance rules to prevent companies inflating claims to Video Game Tax Relief (VGTR) with payments that remain unpaid for long periods (VGDC80040). These apply only for the purposes of VGTR only. These do not affect the amount of expenditure for the trade, simply when a deduction is allowed.


In the video game industry, payment for goods and/or services is sometimes contingent on the video game making a profit. Effectively, the amount the supplier is to be paid is linked to the success of the project and they will only begin to be paid these amounts when the video game generates sufficient income. In that case the costs are recognised if, or when, the income on which they are to be based is also recognised.

Video Game Tax Credits due or paid to the Video Games Development Company in connection with a video game are not regarded as income earned from the video game.

See VGDC80040 for a worked example involving a VGTR claim and deferred, contingent expenditure.