Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Video Games Development Company Manual

HM Revenue & Customs
, see all updates

Avoidance and disclosure: interaction with Research and Development Credits and State Aid

S1217C(4) Corporation Tax Act 2009 (CTA 2009)

Interaction of VGTR and Research and Development reliefs

S1217C(4) says:

   ‘But video games tax relief is not available in respect of any expenditure if:

        The company is entitled to an R&D expenditure credit under Chapter 6A of Part 3 in respect of the expenditure; or

        The company has obtained relief under Part 13 (additional relief for expenditure on research and development) in respect of the expenditure.’

For large companies there are currently two Research and Development (R&D) schemes in place- The ‘Large Scheme’ and the ‘Research and Development Expenditure Credit’ scheme.

Video Games Development Companies (VGDC) who carry out R&D and claim under the Large Scheme may also claim video games tax relief (VGTR) on non R&D expenditure, This is because R&D claimed under the ‘Large Scheme’ is not State Aid, and therefore the ‘bubbles’ of R&D within a video games project may be eligible for R&D relief. As always, it is important to keep records to demonstrate how any apportionment has been arrived at.

However, the Research and Development Expenditure Credit (RDEC) scheme is different. As shown in the legislation above, a company is entitled to claim the RDEC if it has qualifying expenditure for the accounting period. So if a large company is also a Video Games Development Company (VGDC) then it doesn’t have a choice as to whether to claim RDEC or VGTR. If it is entitled to claim RDEC as a result of carrying on a qualifying activity and incurring qualifying expenditure then it must claim RDEC. However, if the expenditure is not qualifying for the purposes of RDEC then it then it may qualify for VGTR.

Some Small Medium Enterprise (SME) VGDCs may be carrying on R&D and/or may have claimed R&D tax relief in the past. It’s important to note that where SME R&D tax relief is claimed on a project, that project cannot claim for any other State Aid reliefs (including video games tax relief and grants). Because a project cannot usually attract two or more different types of state aid, this means that if a video games development company chooses to claim VGTR, any R&D ‘bubble’ within that project wouldn’t qualify for R&D relief under the SME scheme.

Limit on State aid

Video Games Tax Relief (VGTR) is a State aid. A State aid is defined in Article 107(1) Treaty on the Functioning of the European Union as:

‘any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.’

The Department for Business Innovation & Skills (BIS) provides further guidance on State aids at .

VGTR is a State aid notified to the European Commission and must must adhere to the permission granted. There is no limit to the amount of State aid that can be received as long as it does not exceed the intensity level. 

State aid intensity and cumulation

Each Video Games Development Company (VGDC) must ensure that it does not exceed the proscribed State aid intensity levels set out in the permission granted. ‘Intensity’ means the total amount of aid received for the production. The intensity level for video games is 50% of the cost of the game. Breaching the limit may mean that any State aid given in excess of the permissible amount will have to be returned to the organisation or Department giving the aid.

A company must also consider whether it has received other forms of aid from other sources as these must be ‘cumulated’ to arrive at the intensity figure.

Cumulation means that you must add up any State aid received from more than one source going to the same project.

Other forms of State aid may include: grants, direct payments, interest rate subsidies, tax reliefs, repayable advances, reimbursable grants, guarantees, tax advantage or exemption, risk finance, or any aid by a state or through its own resources. This list is not exhaustive and companies should determine whether any payments, grants etc. they receive are State aid which may need to be taken into account when determining whether they have reached an intensity level.

Companies should seek professional advice or contact BIS to determine whether they are in receipt of other State aids or have gone above the permitted State aid intensity.