Goodbye Video Games Tax Relief, Hello to the Video Games Expenditure Credit

TIGA responds to Spring Budget 2023

The Chancellor of the Exchequer, the Rt Hon Jeremy Hunt MP, has delivered his 2023 Spring Budget. The Government announced that Video Games Tax Relief will be replaced with a Video Games Expenditure Credit. The new credit will have a rate of relief of 34% on 80% of qualifying expenditure. TIGA has campaigned for a higher rate of relief for many years and in advance of the 2023 Budget.

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%.
• 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.

Other key policies and announcements include:

• Growth/inflation: The Chancellor announced that the Office for Budget Responsibility (OBR) forecasts show the UK will not now enter a technical recession this year. The Chancellor also said the OBR forecasts inflation to fall from 10.7 per cent to 2.9 per cent by the end of the year.
• Additional tax relief for R&D intensive SMEs – From 1 April 2023, a higher rate of relief for loss-making R&D intensive SMEs will be introduced. SME companies for which qualifying R&D expenditure constitutes at least 40% of total expenditure will be able to claim a higher payable credit rate of 14.5% for qualifying R&D expenditure. A technical note setting out more detail is published alongside the Spring Budget.
• Update on ongoing R&D tax relief review – The Government’s consultation on merging the R&D Expenditure Credit (RDEC) and SME schemes closed on 13 March. The Government is currently considering the responses and no decision has been made. The Government intends to keep open the option of implementing a merged scheme from April 2024. The Government will publish draft legislation on a merged scheme for technical consultation alongside the publication of the draft Finance Bill in the summer, with a summary of responses to the consultation. Any further changes as a part of the ongoing R&D tax reliefs review will be announced at a future fiscal event, including a final decision on whether to merge the RDEC and SME schemes.
• Delay to restrictions on overseas expenditure in R&D tax reliefs – The previously announced restriction on some overseas expenditure will now come into effect from 1 April 2024 instead of 1 April 2023. This will allow the Government to consider the interaction between this restriction and the design of a potential merged R&D relief.
• Investment Zones – The Government is launching the refocused Investment Zones programme to catalyse 12 high-potential knowledge-intensive growth clusters across the UK, including four across Scotland, Wales and Northern Ireland. English Investment Zones will have access to interventions worth £80b over five years, including a single five-year tax package for businesses in Investment Zones and grant funding to address local productivity barriers.  The Government has invited local partners in eight areas in England to begin discussions on establishing Investment Zones. DLUHC is working closely with the devolved administrations to establish how Investment Zones in Scotland, Wales and Northern Ireland will be delivered. Further details will be announced in due course.
• Migration – The Government will accept the Migration Advisory Committee’s (MAC) interim recommendations to initially add five construction occupations to the Shortage Occupation List (SOL), ahead of its wider SOL review concluding in the autumn. The Government will also review the SOL more regularly.
• Call for Evidence on informal Flexible working – The Government will bring forward a call for evidence to launch in Summer 2023 on informal and ad hoc flexible working to better understand informal agreements on flexible working between employees and employers.

Ahead of the Spring Budget, TIGA called for the Government take six policies forward:

 

1. An increase in the rate of Video Games Tax Relief (VGTR), either by increasing the rate from 25 per cent of 80 per cent of core expenditure to 32 per cent of 80 per cent of core expenditure; or by increasing the rate of qualifying expenditure from 80 per cent to 100 per cent and keeping the rate of relief at 25 per cent.

 

2. The establishment of a Video Games Investment Fund (VGIF) to provide pound-for-pound match funding of between £75,000 and £500,000 to games developers throughout the UK.

 

1. The establishment of an Industrial Secondments Programme (ISP) to enhance skills development in video games and so support students, lecturers and industry.

 

1. The reinstatement of the Skills Investment Fund (SIF) to provide matched funding for games industry skill development.

 

5. The funding for BTECs to be retained and enhanced to bolster the supply of talent to work in the UK’s high skills video games sector.

 

6. The UK Games Fund should continue to receive support from the UK Government. The Fund offers grants of up to £25,000 to businesses looking to build game prototypes.

 

Dr Richard Wilson OBE, TIGA CEO, said:

“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.  TIGA is pleased 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 delighted 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.”

Jason Kingsley OBE, TIGA Chairman and CEO and Creative Director of Rebellion, said:

“The video game industry is a major contributor to the economy and I’m pleased to see that the Government recognizes the importance of the sector. The Government’s proposed Video Games Expenditure Credit has the potential to reinforce growth in the UK video games sector.

“To further promote growth in the industry, I recommend implementing TIGA’s six policies, including a VGIF and maintaining the UK Games Fund, which will provide better access to financing and help studios expand. An Industrial Secondments Programme and Skills Investment Fund will also support workforce development and promote talent supply.”

The Red Book can be accessed here. A press release from HM Treasury can be accessed here.