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HMRC internal manual

Video Games Development Company Manual

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HM Revenue & Customs
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Calculation: rates of relief

S1217CG, S 1217CI Corporation Tax Act 2009

Where a Video Games Development Company (VGDC) is entitled to claim Video Games Tax Relief (VGTR) in respect of enhanceable expenditure (VGDC55020), the rates of both the enhancement and any payable credit (VGDC55100) are as follows:

Rate of enhancement 100%
   
Payable credit rate 25%

The rate of enhancement is not varied according to the size of the budget for the development. The rate is always 100%.

VGTR will be most valuable where the video game trade is loss-making and the VGDC surrenders the additional deduction for a payable tax credit.

The table below shows the value of the VGTR assuming in each case that:

  • at least 80% of the total core expenditure is EEA core expenditure, and
  • the rate of Corporation Tax is 23%.
VGDC with sufficient taxable profits to absorb all of additional deduction Enhanceable expenditure = 80% of total expenditure

Value of VGTR

= 80% x 23%

= 18.4%    
     
  VGDC has no taxable profits and claims maximum amount of payable credit Enhanceable expenditure = 80% of total expenditure

Payable credit rate = 25%

Value of Video game Tax Credit:

= 80% x 25%

= 20%

This means that there is both a timing benefit and an overall financial benefit to surrendering losses for a payable tax credit.

The anti-avoidance provisions for VGTR prevent a company artificially inflating development costs in order to increase relief or a payable credit (VGDC80040). These provisions will also apply to the situation where income is not recognised or deferred to increase the surrenderable loss.