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HMRC internal manual

Video Games Development Company Manual

Eligible expenditure: subcontractor costs

S1217CF Corporation Tax Act 2009

The sub-contracting limit operates at the level of the game and is set at £1m. Once the cap is reached on any particular game, no further sub-contracting expense will qualify. The sub-contracting limit applies whether the companies are within the UK or elsewhere in the EEA. The legislation at s1217CF says that a sub-contractor payment is a payment to another person and does not stipulate any location. For example, if a company spends £200,000 on a subcontractor in France it would still have a further £800,000 it could spend elsewhere in the EEA. If that company goes on to spend a further £900,000 on a subcontractor in the UK, only £800,000 will qualify and the remaining £100,000 will not be core expenditure.

The subcontracting limit is not intended to apply to every payment made by the company to a third party, for example a licence payment to another company for the use of software. Its intention is to limit the amount that can be paid where a part of the process of designing, producing or testing the game is outsourced to a third party, or where a third party produces content which is discernable in the released version of the game. So if the testing phase is outsourced that would constitute subcontracting expenditure, this applies whether the subcontractor is UK or overseas based and will apply to other group members.

Examples of content which is discernable in a game would be where voice content has been lip-synched by a third party or where background design has been outsourced. Each game and its content will have to be considered on its own facts and it is not possible to produce a definitive list of what would be considered subcontracting and what would not. Any company concerned as to whether this limit could apply to their game should contact the Creative Industries Unit for further advice setting out the relevant details.