The UK Government has announced that the Video Games Tax Relief system will be replaced with a Video Games Expenditure Credit system as part of the 2023 Spring Budget.
The new tax credit system offers a higher relief rate of 34% on 80% of a business’ qualifying expenditures rather than the previous system’s 25%, but will be specifically for goods and services that are ‘used or consumed in the UK’. As such, to be eligible to use the Video Games Expenditure Credit system, at least 10% of expenditure (either used or consumed) has to be from within the UK.
To assist with these changes, there will also no longer be a cap on subcontracting under the new system, as opposed to the 2014 system, in which it was capped at £1 million in relief per game project.
Developers will be able to claim these expenditure credits from January 1, 2024.
New games will have to make claims for Video Games Expenditure Credit from April 1, 2025, while games that are already in development can continue to make their claims under the current Video Games Tax Relief system until April 2027 to give companies time to adjust.
An additional tax relief system was also announced for small and medium-sized enterprise companies that are research and development intensive. Those that qualify are able to claim a higher credit rate of 14.5% on qualifying research projects’ expenditures.
So far, it seems like the tax changes have gone down well with the UK games industry and its trade association bodies.
“The UK’s game development sector generates annual tax revenues of £1.2 billion for the Treasury and contributes £2.9 billion to UK GDP annually.” said TIGA’s CEO, Dr Richard Wilson OBE.
“TIGA is delighted to see the headline rate of 34% for the Video Games Expenditure Credit. TIGA has campaigned for a higher rate of relief for many years and in advance of the 2023 Budget. TIGA is also very pleased that the video games sector is viewed as ‘critical’ by the Chancellor. We look forward to working with the Government to make the new Video Games Expenditure Credit drive growth in studios, the sector and the wider economy.”
“The video games sector across the UK has grown substantially since the introduction of Video Games Tax Relief in 2014, providing high value jobs and contributing significantly to the economy. It has lowered risk, opened up access to finance routes, and helped make the UK one of the most attractive places in the world to develop games,” commented Ukie in a statement released earlier today.
“We welcome the response to the consultation earlier this year and we are keen to ensure companies of all sizes and budgets can benefit from the new Video Games Expenditure Credits regime. We are pleased to see there will be a reasonable transition period, allowing companies time to prepare for the new system.”
“However some of the changes, such as the removal of EEA spend, will need to be complemented with a serious investment into the skills we have access to in the UK in order to maintain the incredible growth we have seen in the UK. We look forward to working with the government and the industry over the coming months to ensure targeted support for skills and talent development is effective.”