TIGA has raised concerns about the upcoming Video Games Expenditure Credit and has called for the UK government to bring the new incentive more in line with the current Video Games Tax Relief.
The trade body said growth “could be jeopardised” unless the VGEC is introduced with careful consideration.
The VGEC was announced earlier this year, promising a rate of relief of 34% on 80% of ‘qualifying expenditure’ — a significant increase on the 25% offered by the VGTR.
However, TIGA observed that this 34% is claimed as an income receipt, which is subject to Corporation Tax, and essentially equates to 25.5% — a 0.5% increase on the current relief.
The VGEC will also see the removal of the eligibility of European expenditure, which is offset by withdrawing the £1 million sub-contracting cap. This means qualifying expenditure will only be on goods “used or consumed in the UK.”
“It is vital that the new Video Games Expenditure Credit strengthens our world leading video games industry,” TIGA CEO Richard Wilson said.
“Enabling connected party profits, simplifying the claims process, and providing guidance on what constitutes ‘used and consumed products in the UK’ are vital reforms. Increasing the rate relief from 34% to 39% would power job creation and investment in the sector.”
TIGA has issued three proposals in response to the government’s plans for VGEC, which will come into effect from January next year.
These include the need for the VGEC to adopt the same pricing rules as the VGTR because financial models such as the Special Purpose Vehicle (SPV) and the man-month rates model “would be adversely affected as any markup applied between two connected parties would be excluded.”
TIGA also urges the government to simplify the claims process. The VGEC currently requires applicants to complete a seven-step test used for Research and Development Expenditure Credits (RDEC), which the VGEC is modelled on.
However, the RDEC is designed for large companies, and, as TIGA highlighted, the UK’s game development sector “is predominantly made up of SMEs [Small and Medium-sized Enterprise], so some smaller companies may not be able to apply.”
The trade body suggested that the HMRC should explore ways of simplifying the VGEC submission process to make it “more suitable for games companies of every size.”
Finally, TIGA called for more guidance on what constitutes “used or consumed in the UK,” ideally with specific examples from the government and HMRC, to address the “uncertainty within the sector about exactly what will and will not be eligible.”
