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HMRC internal manual

Video Games Development Company Manual

Qualifying video games: video games

S1217AA Corporation Tax Act 2009 (CTA 2009)

Any Video Games Development Company (VGDC) must apply the rules in Part 15B CTA 2009 to compute the taxable profits or losses pertaining to its activities in relation to a video game.

The term ‘video game’ is not itself defined within the legislation. It is therefore given its common meaning.

A video game is an electronic game that is played through a video device. The video device and equipment required to play the game are separate from the game itself, even if the two are sold as a single product. The video game is the software and other electronically stored content and information, rather than the hardware it is played on.

A video device means any device that is capable of producing two or three dimensional moving images. Traditionally this would mean only a device including or attached to a television or monitor, but now includes devices such as mobile phones and tablet devices as well as handheld portable games machines.

Where a video game is designed to be played on a games machine, development of the hardware is not an element of design of the game. This is true even if the hardware is only capable of being used in conjunction with the video game.

The electronic game includes all the electronic content of the game that is required to play that game. This includes audio content such as sound effects and soundtrack. It also includes any elements that are not interactive, such as filmed or animated sequences for narrative purposes, or options required to adapt the game to suit the desires of the player.

A game must have sufficient capability for a player to directly control actions and events in some way. There must be an uncertain outcome for the product to be a game, where the player’s actions have a meaningful result in the outcome.

Excluded video games

For the purposes of the video games development regime, video games do not include anything that is produced for advertising or promotional purposes, or for the purposes of gambling.

The restriction on advertising or promotional purposes is intended to disqualify games which are predominantly produced for advertising or promotional purposes. This would prevent a free video game designed to promote a film or animation from receiving relief.

It is not intended to prohibit advertising being carried in games. This is common practice for mobile phone apps which will typically offer a free version which carries advertising and one which may be purchased.

Gambling is defined by reference to the Gambling Act 2005 (GA2005). This therefore means that gambling includes activities described as:

  • gaming (GA2005/S6)
  • betting (GA2005/S9), and
  • participating in a lottery (GA2005/S14).

 In relation to the Gambling Act, ‘gaming’ means playing a game of chance for a prize. A game is a ‘game of a chance’ even if it also involves an element of skill or where the element of chance can be eliminated by superlative skill. The prize must be money or money’s worth. There does not have to be any other participators in the game, nor does the player have to risk losing anything in the game.

Video games can involve elements which are akin to gambling except for the fact that real money (or a currency that carries money’s worth) is not used. For example, a poker video game would not constitute gambling unless there was a mechanism within the video game itself for winning prizes of real money/money’s worth.

If a video game includes the ability to “cash out” a currency of real monetary value that may be won through skill or chance within the game, then it is likely that it will constitute gambling.

A video game which includes the ability to purchase more resources for use in the game may not in itself be an indicator of being gambling. This is a common means of monetising video games in the mobile phone app market. If you have any concerns please contact the Manchester unit (VGDC10020)

Interim and final certificates

The onus is on the VGDC to ensure that they meet the Video Games Tax Relief (VGTR) criteria with regards to video game. If a video game qualifies on an interim basis and does not receive a final certificate, any VGTR received will be withdrawn.

Where an interim claim for VGTR has been paid by HMRC to the VGDC, the VGDC must apply for a final British video game certificate from the BFI once the video game has been completed. The final certificate must be submitted to HMRC.

If the VGDC does not submit a final certificate, then any VGTR paid on the basis of the interim certificate is no longer due and will have to be repaid to the HMRC by the VGDC. This is only not the case where the development is abandoned and the video game is not completed. In that instance an interim certificate is still required.