The Video Games Expenditure Credit (VGEC) is now the main route for UK games companies to access creative sector tax support. Available from 1 January 2024, it replaces the previous Video Games Tax Relief and is mandatory for all new games from 1 April 2025, with all games moving into the regime by 1 April 2027.
For games developers, VGEC can provide valuable support for qualifying development activity. However, the rules require careful consideration of who can claim, what qualifies as a video game, which costs are eligible and how the credit is calculated before any claim is submitted.
What is VGEC?
VGEC is a taxable expenditure credit available at a rate of 34% for qualifying video games. As the credit is subject to corporation tax, this gives an effective net benefit of up to 25.5% for companies paying corporation tax at the main rate.
The regime is intended to support UK-based game development and can provide a higher level of support than the previous Video Games Tax Relief for many qualifying companies.
Who can claim?
A claim must be made by the Video Games Development Company (VGDC). The VGDC must be responsible for the design, production and testing of the video game, be actively involved in planning and decision-making, and directly negotiate, contract and pay for rights, goods and services relating to the game.
The company does not need to directly carry out every element of the development process, but it must retain overall responsibility and be actively engaged throughout. At least 10% of the core expenditure must relate to goods or services provided from within the UK.
What games qualify?
To qualify, a game must be intended for supply, certified as British and meet the UK core expenditure condition. Because the legislation does not define “video game” in detail, the term takes its ordinary meaning as an electronic game played through a video device.
Games produced for advertising or promotional purposes, or for gambling, are not eligible for VGEC. Certification by the BFI Certification Unit is required, and interim certification may be available where the game has not yet been completed.
What costs can be included?
Qualifying expenditure is generally incurred during the design, production and testing phases of the game. This covers the stages where the project moves beyond initial concept design, the game is developed and then tested for technical performance, story, levels and gameplay.
Initial concept design, debugging and post-release maintenance do not qualify. Expenditure on marketing, financing and legal matters is also specifically excluded from qualifying expenditure.
How is the credit calculated?
VGEC is calculated by reference to the game’s relevant core global expenditure. Qualifying expenditure is the lower of the company’s relevant UK expenditure and 80% of its relevant global expenditure, less any amounts already included in previous claims.
The expenditure credit is then calculated at 34% of qualifying expenditure. Once the credit has been calculated, a six-stage process is applied to determine the amount payable or available to offset against corporation tax and certain other liabilities.
What should games companies do next?
Games companies should review their development pipeline, project documentation and cost allocation processes to ensure claims are prepared on the correct basis. In particular, businesses should be able to distinguish between concept design, development, testing, debugging and post-release activity.
For all claims submitted after 1 April 2024, an additional information form must be submitted to HMRC. Maintaining clear technical and financial records from the outset can help support a more robust claim.
We’re here to help
Our specialists help games companies assess whether VGEC applies, identify qualifying expenditure and prepare claims that are ready for HMRC review.
If you would like to discuss VGEC or wider creative sector tax reliefs, please get in touch with our specialist team or your usual Azets adviser.