TIGA, the trade association for the UK Video games industry said today that the UK Government should retain the eligibility of European expenditure under Video Games Tax Relief (VGTR), raise or remove the £1 million cap on subcontracting, support small and medium-sized studios and enhance the impact of the Relief. TIGA made the comments in its submission to the Audio-visual tax reliefs: consultation.
TIGA’s response to the consultation was informed by a survey of TIGA members, two TIGA webinars with accountancy and legal firms RSM, Saffrey Champness and Wiggin LLP, and a series of stakeholder engagements. VGTR is of crucial importance to the UK video games industry. 94 per cent of respondents to TIGA’s survey stated they accessed or benefited from VGTR and 39 per cent stated that VGTR was critical to their business.
TIGA’s submission included the following four key points:
- Retain eligibility of European expenditure under VGTR: Currently, some UK video games development activity that takes place in the EU can qualify for VGTR. The Government has suggested that this could end. However, the existing VGTR system enables UK studios to access highly skilled development staff that may not be available in the UK. This reinforces the attraction of the UK for Foreign Direct Investment (FDI). Removing European expenditure from eligible VGTR costs could impair the ability of some UK games studios to produce games cost-effectively with highly skilled staff. 67 per cent of respondents to TIGA’s survey on VGTR said that the removal of European expenditure from VGTR’s qualifying costs would negatively impact their production activities.
- The Government should raise or remove the £1m subcontracting cap: 28 per cent of respondents to our survey supported removing the cap on the grounds that this would encourage collaboration with other UK studios, boost investment, create jobs and enhance studio competitiveness. 57 per cent of survey respondents said that raising the subcontracting cap would have no impact on them (the majority of developers are too small for this change to make a difference).
- Support small and medium-sized studios: the Government plans to replace VGTR with an Expenditure Credit, in order to comply with new OECD rules designed to ensure that multinational businesses with revenue exceeding 750 million euros pay a minimum effective corporation tax rate. Only a small number of games businesses are affected by the OECD rules. Additionally, there is a risk that small studios might be adversely affected by unnecessary administrative changes by switching to an Expenditure Credit, The Government should therefore explore the potential for a two-tier system, either as a permanent or transitional arrangement. This could involve an Expenditure Credit for the largest games companies and the maintenance of VGTR for small and medium games studios.
- Enhance VGTR: VGTR could be enhanced to promote further growth in the sector either by increasing the current rate of relief from 25 per cent rate to 32 per cent of qualifying expenditure; or increasing the proportion of qualifying expenditure from 80 per cent to 100 per cent and retaining the current rate of relief at 25 per cent.
Dr Richard Wilson OBE, TIGA CEO, said:
“VGTR has transformed the UK video games sector since it came into effect in 2014, not least by supporting an average annual rate of employment growth of 9.9 per cent.
“If the video games industry is to continue to create high skilled jobs and support economic growth across the UK, then the Government must retain and enhance VGTR. The Government should at the very least lift the outsourcing cap and increase the generosity of the Relief. Conversely, the Government should think twice about confining eligible VGTR expenditure to the UK. Equally, the Government should consider the merits of operating an Expenditure Credit for the largest games companies and the maintenance of VGTR for small and medium-sized games studios, either on a permanent or temporary transitional basis.”