Insights Government publishes reforms to Video Games Tax Relief

As part of the Spring Budget measures announced on Wednesday by Chancellor Jeremy Hunt, the government published its response to the Treasury’s audio-visual tax reliefs public consultation and confirmed that it will introduce a new Video Games Expenditure Credit (VGEC) of broadly equivalent value to the existing video games tax relief (VGTR). The new VGEC will run alongside the existing VGTR for accounting periods beginning on or after 1 January 2024 before being obligatory for new video games post 1 April 2025 (unless such video games are in development on this date – see detailed transitional provisions below).

Whilst the fine details of VGEC will become clearer in the coming weeks and months as conversations continue and draft legislation and HMRC guidance is produced, a summary of the headline points is set out below.

Summary of VGEC Key Features:

  • VGEC will be a refundable expenditure credit, based on the existing R&D expenditure credit. This is different from the current calculation of the existing VGTR. VGEC will be calculated directly from qualifying expenditure. The credit will be accounted for as an income receipt and included in a company’s profits and subject to corporation tax (with a deduction allowed from the corporation tax).
  • VGEC will apply at a headline credit rate of 34%, which will broadly equate to a 25.5% credit as a % of qualifying expenditure (as opposed to the current 25% relief – see a calculation example here).
  • European Economic Area (EEA) expenditure will be excluded from the qualifying costs of the VGEC. Instead, expenditure will qualify if it is incurred on ‘goods or services used or consumed in the UK’.
  • Eligibility criteria for the VGEC will require a minimum of 10% of expenditure to be on goods or services used or consumed in the UK, in line with the rules for the film and TV tax reliefs.
  • The government will work with industry and provide further guidance on the ‘used and consumed in the UK’ definition to ensure that it works in the video games context.
  • The £1 million per game subcontracting limit will be removed from the VGEC.

Transitional periods:​

  • There is a generous transition period: video games that have begun but not concluded development on 1 April 2025 may continue to claim relief under the current system until 31 March 2027.
  • EEA expenditure will continue to be a qualifying cost for VGTR until 31 March 2027, when the relief ends. If a business chooses to opt into the VGEC in the meantime, they will no longer be able to claim EEA expenditure from that point.
  • The £1 million subcontracting cap will also be retained for VGTR until the relief comes to an end on 31 March 2027.
  • From 1 April 2027, all claims must be made under the VGEC system.

Please see copies of HM Treasury’s “Audio-visual tax reliefs consultation: Summary of responses” and an expected timeline of events for reference.

Clearly, there will need to be ongoing engagement with the Treasury on the detailed design and implementation of the VGEC, together with other important details, but overall this seems to be a positive result for the video games sector.