In the fast-paced world of the UK’s gaming industry, seizing every opportunity is key to success. Amidst the thriving sector contributing approximately £1.25 billion to the nation’s GDP, there’s a crucial lever empowering game developers to push boundaries and excel: the Video Games Expenditure Credit (VGEC). In this blog, we delve into what this credit entails and how it can be a game-changer for businesses within the realm of video game development.

What is VGEC?

VGEC is a government-backed initiative designed to boost employment and investment in the UK’s video game sector. As part of a broader strategy to support creative industries, VGEC provides financial support to companies involved in developing video games, whether through physical copies or digital downloads.

The Value Proposition:

Similar to its predecessor, Video Games Tax Relief (VGTR), VGEC offers tangible benefits to eligible entities. Companies can receive an ‘above the line’ tax credit of 34% of qualifying expenditure, covering essential aspects of game development such as design, production, and testing. ‘Above the line’ refers to the fact that this credit is treated as taxable income. The net effect is that the company’s tax liability is first increased by tax on the value of the credit but then reduced by the full value of the credit. By way of example, if a company incurs £100,000 in qualifying production expenses, it will receive a tax credit of £34,000 (34% of £100,000). Assuming the company pays tax at the full corporation tax rate of 25%, the calculated tax liability will at first increase by £8,500 (25% of the credit value). However, the full value of the relief is then applied to reduce the calculated tax liability, reducing it by £34,000. So, for every VGEC pound of credit they receive, they will get to keep 25.5 pence (34 pence less 25%) after the taxes are taken into account.

This financial injection eases the burden of creating top-notch gaming experiences, fostering innovation and expansion.

How to Qualify:

To access VGEC, companies must meet specific criteria:

  • Registered as video games development companies (VGDC) and subject to UK Corporation Tax.
  • Actively involved in all stages of game production.
  • Direct payment for goods and services related to the game.
  • Games must pass the Cultural Test administered by the British Film Institute (BFI), certifying them as British productions.

Seize the Opportunity:

VGEC presents a significant opportunity for companies aiming to thrive in the competitive gaming industry. By leveraging this credit, businesses can fuel growth, foster innovation, and enhance international competitiveness.

Conclusion:

In conclusion, VGEC stands as a beacon of support, empowering UK-based game developers to realise their creative visions and cement their position as industry trailblazers. As the gaming landscape continues to evolve, embracing initiatives like VGEC is not just advantageous—it’s essential for staying ahead of the curve.

If you need support navigating the intricacies of VGEC, reach out to our Tech & Media team on 0845 606 9632 or email team@thesmartaccountants.co.uk.