The European Commission has approved the UK’s proposed tax relief on “culturally British” video games. Following investigation, the Commission announced today that its doubts as to the necessity of such relief have been “dispelled”. The tax relief, being 25% of qualifying production costs, will come into effect on 1 April 2014 – a year after originally planned.

The tax relief will be applicable to up to 80% of the production budget of a video game – provided it qualifies. The relief can be claimed by UK companies developing games, which includes designing, producing and testing games, provided that at least 25% of the core expenditure on the game is EEA expenditure. Notably, the draft legislation does not define “video game” such that the relief is likely to apply to the entire range of games across all platforms. However, the games must be intended to be released to the public and games produced for promotional or gambling purposes are excluded from relief.

It is hoped that this will encourage the development of new UK-produced games meeting the cultural test, the number of which the Commission agreed would, without this support, be “likely to decline considerably”.

Although, the exact cultural test has not yet been published, there are several aspects likely to be considered, including the locations, characters and storylines featured, how much work on the game is done in the UK and the nationalities of the people doing it. The promotion of culturally British content and encouragement of UK-based developers is expected to reinvigorate the UK games industry.

Since the relief does not apply to individuals, partnerships or LLP’s, game developers involved in the production of games in any of these capacities, should consider incorporating a company in order to claim the benefit of this tax relief. Further, only one company can claim the relief and therefore, where a number of companies are involved in the production of a particular game, the parties should first consider which company is “most directly engaged” and is consequently entitled to claim the relief.

European Commission Press Release available here.