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February 14, 2018
By Anthony Andreasen, director at RMT Accountants & Business Advisors
One of the regional economy’s real success stories in the last few years has been our video game developers.
Names like Eutechnyx, Pitbull Studio, Ubisoft Reflections and Double 11 have achieved critical and commercial success both nationally and internationally, and their products will no doubt recently have featured under many North East Christmas trees.
In recognising the importance of this growing sector to the wider economy, and the potential for major industry names to locate their games development operations abroad for cost reasons, the Government introduced the approved version of its Video Games Tax Relief (VGTR) scheme in the 2014 Budget.
It’s a scheme which is designed to encourage growth and support in this sector within the UK, and it offers developers many financial benefits for qualifying work as long as they stick to the key criteria that it specifies.
In simplified terms, the net cash benefit is between 20 and 25% of the qualifying expenditure, in the form of a Corporation Tax reduction, or, a cash credit from HMRC if your company is loss-making from a taxable profits perspective. The exact benefit varies depends on the calculations around your precise tax position.
Qualifying for the scheme involves at least 25% of the expenditure being UK expenditure and achieving certification from the British Film Institute. In order to do the latter, a given game must pass what is referred to as a ‘Cultural Test’, stating that the video game is a ‘British Video Game’.
Details of this can be found on the BFI website, but in summary, a company has to achieve at least 16 points in a series of tests that total 31 points.
Some of these tests are straightforward, such as members of development teams being located here, but a larger proportion of points are awarded on points such as where the game is based on British subject matter, whether the original dialogue was recorded mainly in English (or one of six UK indigenous languages), or whether lead characters are British or European citizens or residents.
These areas create some degree of ambiguity, and getting advice on exactly how you stand is crucial before you look to take advantage of the scheme.
All types of games qualify for the scheme, assuming they achieve BFI certification from the BFI, which means you don’t have to be seeking a ‘technological advance’ or resolving ‘technological uncertainty’, which you would need in order to qualify under research and development allowances schemes, along with a wider range of other tests.
However, games do not qualify where they are linked with advertising or promotions, or anything produced for the purposes of gambling, and you can’t claim both VGTR and R&D tax allowances.