Member Article

Video Games Tax Relief or R&D Tax Relief?

Video Games Tax Relief or R&D Tax Relief?

Which measure is best to maximise returns for your business? Can one affect the other? Can you blend the two? When can you claim?

BACKGROUND

Creative Industry Tax Reliefs (CITR) are a group of four Corporation Tax reliefs. Film Tax Relief was first introduced by the UK government in April 2007 to promote the British film industry; followed in April 2013 by Animation Tax Relief (ATR) and High-end Television Tax Relief (HTR); and now, as of April 2014, video game developers can also claim Video Games Tax Relief.

The video games development sector is no longer dependent on console platforms to release and publish games, moving to online, tablet and mobile platforms, which means that SMEs are now more able to engage and control their own game production and publication, leading to greater levels of innovation in the sector.

Therefore this new tax relief is a welcome addition for this particular sector complementing R&D tax credits.

THE BASIC RULES

To be eligible for creative industry tax reliefs, game developers must be:

• Liable for corporation tax
• Have a game in production that promotes British culture and values. (This will be determined by a ‘cultural test’)
• The project must be intended for public release at its inception (a failed project will still be eligible as long as it was intended for public release).
• Only UK expenditure can qualify for Video Games Development Relief and a minimum of 25% of the core expenditure from within the European Economic Area.
• Furthermore, eligible expenditure is determined to be the lesser of UK expenditure or 80% of the qualifying expenditure and a 100% enhancement is added to this for the purposes of tax deduction.

On top of the basic rules there are more detailed rules and of course all are open to interpretation.

WHAT IS BEST – R&D TAX RELIEF OR GAMES TAX RELIEF?

It depends…there is no simple answer. The devil is most definitely in the detail however we are confident that the answer will be how to blend the two reliefs rather than pick one against another.

Here at Jumpstart we want to make sure we are providing the best advice on tax relief for all of our clients. We have taken a selection of our clients and are in the middle of analysing exactly how to optimise the return through both schemes and this will be complete in the next two months.

WHY IS IT NECESSARY TO WORK THROUGH SOME PRACTICAL EXAMPLES?

It could be possible for a company to make a claim under both the R&D tax relief and Video Games Tax Relief schemes, however the same costs cannot be included under both schemes (double dipping).

It is therefore essential to examine projects carefully to allow a strategic decision to be made as to which costs should be claimed under which scheme. Decisions need to be based on the eligibility of work under each scheme and the financial implications for the company. Our role at Jumpstart is to advise our clients of the outcome of taking one route or another and to do this from a position of knowledge rather than guesswork.

The R&D tax relief scheme currently allows an SME to enhance all eligible R&D work by 125% and surrender available losses at 14.5%. The Video Games Tax relief allows an enhancement of 100% for eligible work, but companies are able to surrender available losses at 25%.

FINALLY, DO I NEED TO DECIDE QUICKLY UNDER WHICH SCHEME TO MAKE A CLAIM?

As with the R&D tax relief scheme, the Video Games Tax Relief allows for claims to be made retrospectively any time up to 2 years after the end of a company’s accounting period.

Since the scheme was only introduced on 1st April 2014, and you have two years to make a claim and adjust your tax return retrospectively, this is not something you need to rush into.

However it is best to know your position as soon as possible. Our recommendation at Jumpstart is to have a detailed review within three months after your year-end and this means no earlier than the end of June 2014.

Tax relief is a hugely complex area and to help you understand what is best for you and your company you can enlist the help of an expert, Jumpstart, to ensure you have the right information, optimising the tax relief due to you.

For more information in general or if you would like to take part in our study, please get in touch at helpinghand@jumpstartuk.co.uk

This was posted in Bdaily's Members' News section by Jumpstart Ltd .