The Chancellor of the Exchequer, the Rt Hon Jeremy Hunt MP, announced in the Budget on 15th March that Video Games Tax Relief will be replaced with a Video Games Expenditure Credit.
The Chancellor announced the following details concerning the Video Games Expenditure Credit:
- The Video Games Expenditure Credit will cover the current Video Games Tax Relief and will have a rate of 34 per cent which can be claimed on 80 per cent of qualifying costs.
- Although the nominal rate of the VGEC (34 per cent) is higher than the existing rate of VGTR (25 per cent), in practice the new VGEC is only slightly more generous. VGEC will be calculated from qualifying expenditure. VGEC will be treated as an income receipt, included in a business’s profits and subject to corporation tax (with a deduction allowed from corporation tax). The 34 per cent VGEC rate results in an effective rate of 25.5 per cent of qualifying expenditure. (See these summaries from Wiggin LLP (https://emailcc.com/cv/0b75584819d371d8d8c15b7cf231eee25f8ce910) and RSM (https://www.rsmuk.com/ideas-and-insights/spring-budget-2023-detailed-analysis/business-tax-spring-budget-2023).
- Qualifying expenditure for the Video Games Expenditure Credit will be expenditure on goods and services that are ‘used or consumed in the UK’.
- From 1 April 2025, new games must claim the Video Games Expenditure Credit. Games in development on 1 April 2025 may continue to claim EEA expenditure under the current video games tax relief until April 2027.
- The eligibility requirement for the Video Games Expenditure will require a minimum of 10% of expenditure to be used or consumed in the UK.
- There will be no cap on subcontracting in the Video Games Expenditure Credit.
- The 80 per cent cap on qualifying expenditure will be maintained.
The expenditure credits will be available to claim from 1 January 2024. To give companies time to adjust there will be a generous transition period: games that have not concluded development on 1 April 2025 may continue to claim the existing tax reliefs until April 2027, at which point the existing reliefs will sunset. This means that games in development on 1 April 2025 may continue to claim EEA costs under the current video games tax relief until April 2027.
The full details can be found in the Government’s response to the consultation.