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HMRC internal manual

Video Games Development Company Manual

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HM Revenue & Customs
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Calculation: additional deduction - multi-period developments

S1217CG Corporation Tax Act 2009

Where the development of a video game covers more than one period of account, Video Games Tax Relief (VGTR) operates on a cumulative basis. This means that:

  • In the first period of account the level of the Video Games Development Company’s (VGDC’s) enhanceable expenditure is determined by the amount of core expenditure incurred within that period.
  • In subsequent periods of account, including the final period, the level of the enhanceable expenditure is calculated by reference to total expenditure incurred by the VGDC to date, taking account of VGTR received in earlier periods.

Example: development continues for several periods

A VGDC makes a video game with total core expenditure of £1m, of which 75% is incurred on video game development in the EEA, and 25% incurred on video game development outside the EEA. The video game is produced over three years.

The VGDC is eligible for VGTR and the rate of enhancement is 100% (VGDC55030).

Over the three accounting periods, the profile of core expenditure is:

  EEA (£k) Non- EEA (£k) Total Cumulative (£k)
First period 350   350
Second period 350 100 800
Third period 50 150 1,000
Total expenditure 750 250 1,000

First Period

In the first period of account, because all the core expenditure is EEA core expenditure, VGTR is calculated on the basis of 80% of the total core expenditure, or £280k (= 80% x £350k). The additional deduction is therefore £280k.

Second period

At the end of the second period of account, the total core expenditure to date is £800k, of which £700k is EEA core expenditure. Because EEA core expenditure is greater than 80% of total core expenditure (80% x £800k = £640k), VGTR is provided on the basis of 80% of the total core expenditure incurred to date. The additional deduction is £640k.

However, £280k of VGTR has been claimed in the previous accounting period, leaving £360k (= £640k less £280k) to be claimed in the second period.

Third period

At the end of the third period of account, total core expenditure is £1m, of which £750k is EEA core expenditure. Because EEA core expenditure is less than 80% of the total core expenditure, the VGDC is eligible to VGTR on the full £750k. The additional deduction is therefore £750k.

Because an additional deduction of £640k has been claimed to date, this leaves £110k (= £750k less £640k) to be claimed in the third accounting period.

Cumulative effect

The cumulative effect at the end of the three periods of account is that VGTR is provided on the 75% of core expenditure that was also EEA expenditure.

Summary

  Period 1 Period 2 Period 3
EEA Core Expenditure (cumulative) £350k £700k £750k
Non-EEA Core Expenditure (cumulative) £nil £100k £250k
Total Core Expenditure (cumulative) £350k £800k £1m
EEA core expenditure as percentage of total 100% 87.5% 75%
Enhanceable expenditure to end of period (lesser of EEA core expenditure or 80% of total) £280k    
(80% of total ) £640k
(80% of total) £750k
(EEA core)    
  Additional deduction to end of period £280k
  £640k £750k    
  Less additional deduction claimed for earlier period(s) - (£280k) (£640k)
  Additional deduction due for the period £280k £360k £110k