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HMRC internal manual

Video Games Development Company Manual

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HM Revenue & Customs
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Qualifying video games: minimum European Economic Area (EEA) expenditure

S1217CE Corporation Tax Act 2009

To be eligible for Video Games Tax Relief (VGTR) not less than 25% of the core expenditure (VGDC50010) on the video game must be EEA expenditure.

Where a video game is not a co-development, the 25% EEA expenditure condition is judged by reference to the total core expenditure by the Video Games Development Company (VGDC).

Interim accounting periods

Whether a video game meets the 25% EEA expenditure condition cannot be determined until after the end of the accounting period in which the video game is completed or abandoned (the ‘final accounting period’).

But tax returns for any earlier periods (‘interim accounting periods’) can include claims to VGTR based on an expectation that the condition will be met if they include a statement of planned core expenditure that is EEA expenditure and this indicates that on completion of the video game the EEA expenditure condition will be met.

Claims for interim accounting periods will be revisited, and VGTR claims appropriately revised if it turns out the final amount of core expenditure that is EEA expenditure is less than 25% but claims have been made as if the condition would be met.

Final statement of the core expenditure on the video game that is EEA expenditure

The tax return for the final accounting period must:

  • indicate that the video game has been completed or abandoned, and
  • include a final statement of the core expenditure on the video game that is EEA expenditure.

The final statement should include all core expenditure on the video game by the VGDC. It should take account, as far as it is possible to estimate such amounts with reasonable certainty, of the amount of any deferred payments of core expenditure that is EEA expenditure that can be expected to be paid out in the future (whether by the VGDC or other parties).

Later accounting periods

The question of whether or not a video game satisfies the EEA expenditure condition is determined by reference to the final statement of the core expenditure on the video game that is EEA expenditure.

It is possible that if the VGDC’s deemed trade continues into accounting periods beyond the ‘final accounting period’ (for example, because it continues to retain and exploit an interest in the video game), subsequent amounts paid out as deferred payments may exceed the amount of such payments included on an estimated basis within the final statement of the core expenditure on the video game that is EEA expenditure. Provided that the original estimates were reasonable in the circumstances in which they were made, the video game should continue to be regarded as satisfying the EEA expenditure condition - that is, its status will not be revisited in the light of subsequent events.