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HMRC internal manual

Video Games Development Company Manual

Eligible expenditure: celebrities and image rights

S1217AE, S1217CG Corporation Tax Act 2009

The amount of Video Games Tax Relief (VGTR) to which a Video Games Development Company (VGDC) is entitled in respect of a video game is determined by the amount of core expenditure which is also European Economic Area (EEA) expenditure.

This can present particular issues in relation to payments for services rendered by principal actors whose voices are used or individuals whose image rights are licensed and who spend some time having their image captured digitally for use in the game. In some cases this will primarily relate to their time provided. But in some cases it might be that the costs could be considered to relate to the promotion of the video game.

This may easily occur where a video game is based on a film or a sport and the active involvement or endorsement of an actor or sportsperson can be significant in the commerciality of the game.

The facts of each case should be considered carefully, but any apportionment must be made on a fair and reasonable basis.

Actors or individuals paid mainly by reference to time

Where payments to actors or other individuals are determined mainly by reference to the time spent or committed to the video game, it will be reasonable for costs to be apportioned on a time basis.

This might be from capturing their voice or their likeness to include within a game. In some sports games, the actual movement of individuals may be recorded to ensure that the game has a high level of authenticity.

Costs may need to be apportioned depending on where these activities take place. In that case, it would be fair and reasonable to apportion on the basis of time spent or committed.

Image rights where payment is largely independent of time

Where the amount paid to an actor or sportsperson is largely independent of the time spent or committed to working on the video game, it is reasonable to regard the individual as primarily being paid for their image rights as used in the game. This would therefore be development expenditure.

Some of this fee may be in respect of time spent in capturing their image, as described above. This amount may need to be apportioned on a fair basis.

They may also devote time to promotion and publicity for the video game and they may be contractually obliged to do so. In addition, the official use of their image may be seen as an endorsement of the game. It may be reasonable to conclude that the actual time involvement or image rights used in the game are incidental to this element.

This might be where their contribution is mainly one of ‘celebrity’ or ‘association’ and is used for commercial exploitation.

Where an individual’s fees include payments for travel and subsistence or any other personal costs incurred during promotion of the video game, the additional payment cannot reasonably be included as core expenditure. It relates primarily to promotion of the video game.

If it is in a VGDC’s interest to allocate part of the overall fee paid to a celebrity to activities other than production, HMRC would expect the VGDC to undertake the necessary work to establish and agree with HMRC an alternative allocation.

Interaction with Foreign Entertainers Unit (FEU)

The FEU have responsibility for agreeing the taxation of foreign actors and sportspersons engaged in UK developments. In agreeing the tax position, FEU may allow deductions from their fees for expenses which an actor or sportsperson has incurred.

Deductions allowed have no effect on the amount the VGDC can claim as core expenditure. This will remain the gross fee subject to any restrictions for non-UK expenditure and non-core expenditure.