February 13, 2023
In its submission to the consultation, TIGA, the trade association for the UK Video games industry, said 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 VGTR.
TIGA’s response to the consultation was informed by a survey of TIGA members, two TIGA webinars with accountancy and legal firms, including Wiggin LLP, and a series of stakeholder engagements.
TIGA says that VGTR is “of crucial importance to the UK video games industry”. In a recent TIGA survey, 94% of respondents stated that they accessed or benefited from VGTR and 39% 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; TIGA says that the existing VGTR system enables UK studios to access highly skilled development staff that may not be available in the UK and 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% 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: TIGA says that 28% of respondents to its 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% said that raising the subcontracting cap would have no impact on them (most 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 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; TIGA says that 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; TIGA calls on the Government to 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; and
- enhance VGTR: TIGA says that VGTR could be enhanced to promote further growth in the sector either by increasing the current rate of relief from 25% rate to 32% of qualifying expenditure or increasing the proportion of qualifying expenditure from 80% to 100% and retaining the current rate of relief at 25%.
To read TIGA’s press release in full, click here.