5 VGTR Hacks
Video Games Tax Relief (VGTR) is a valuable incentive that allows video games development companies to claim significant additional deductions against their taxable profits or, under certain circumstances, claim a cash repayment from HMRC. Companies claiming, or looking to claim VGTR should consider the following tips to ensure they maximise the relief available and speed up the receipt of any refunds.
USE UK OR EU-BASED SUPPLIERS
The additional VGTR deduction against a company’s profit is based on the lower of:
- 80% of total core expenditure, and
- the actual European core expenditure incurred.
To maximise relief therefore you should plan on using UK or EU-based suppliers for at least 80% of the company’s core expenditure.
TIP: Be sure to check where your software expenses are originating from, as it isn’t always obvious!
CONSIDER THE SUB-CONTRACTING CAP
Currently set at £1m, the sub-contracting limit sets the maximum amount of subcontractor expenditure that you can claim per game. Once the cap is reached on any particular game, no further sub-contracting expenses will qualify.
£1m may sound like a lot, but as the cap is applied on a per-game basis it could easily be exceeded on a development project spanning over a number of years.
However, the cap does not apply to employee costs, so consideration of whether to use employees or sub-contractors should be factored in when planning development budgets.
GET CERTIFIED ASAP
In order to claim the tax relief, the game must be certified by the BFI as ‘British’. We always recommend getting the application submitted early on so that VGTR claims can be filed as soon as possible.
From our experience, the applications for certification, receiving the certificates and having VGTR claims processed by HMRC can all be slow processes, and if you’re relying on the tax refunds to fund future development then time can be of the essence!
CONSIDER HOW DIRECTOR-SHAREHOLDERS’ ARE PAID
For owner-managed companies, a common form of tax planning for Director/Shareholders involves drawing most of their income as dividends, due to the lower personal tax rates applied.
However, for a video games development company dividend costs are not considered ‘Eligible Expenditure’ for VGTR purposes, so will attract no relief.
Instead, they should consider the overall tax implications from taking a salary, as the percentage of their salary expenses qualifying as ‘Core Expenditure’ is eligible for tax relief.
IMPLEMENT COST TRACKING FOR MULTIPLE PROJECTS
As VGTR claims are made on a per game basis, video games development companies simultaneously working on multiple qualifying games need to be able to separate and track their expenditure between projects.
Allocating costs correctly throughout the year will speed up the process of preparing and submitting the VGTR claims, potentially resulting in any refunds being received more quickly.
Using accounting software (such as Xero) can really simplify this process by allowing the setup of ‘Tracking Categories’ to allocate costs between different projects.
HOW CAN WE HELP
Regardless of the size of your business, Video Games Tax Relief offers a great opportunity for video games development companies to reduce their corporation tax bill or to get a tax rebate from HMRC.
If you’re considering claiming and want to find out how to maximise the relief available then contact ChadSan to arrange a call with our Video Games tax specialist.