Earlier this year we reported on the European Commission’s approval of the UK’s proposed tax relief on ‘culturally British’ games (see our blog available here).

On 19 August 2014, the video games tax relief scheme came into force. The Cultural Test (Video Games) Regulations 2014 (which can be found here), require developers and/or video games companies to score points in a ‘Cultural test’ to be afforded tax breaks.

The scheme is aimed at providing an incentive to developers to produce games which are ‘culturally British’, and hopes to provide savings of £35 million per annum for companies that have been described as “world leaders” by Ed Vaizey, Minister for Culture, Media and Sport.

The percentage of global investment in the games sector in the UK is estimated to have fallen from 10% in 2000 to 3.5% today, which explains the context from which the scheme arose.

The test seeks to determine the relation of companies’ prospective games to Britain and the European Economic Area. Similar to the British film tax relief, the ‘cultural test’ assesses the following factors:

  • the extent to which the game is set in the EEA;
  • the number of characters that are ‘from’ the UK;
  • the extent to which the game depicts a British or EEA story;
  • how much of the original dialogue is recorded in the English language or a recognised regional or minority language (including British sign language);
  • the overall contribution of the video game to the promotion, development and enhancement of British culture;
  • the location of certain aspects of production; and
  • whether any of the personnel making the game are resident in the UK.

Recipients of the relief must score a minimum of 16 points out of 31 in the test to benefit from a 25% repayable tax credit on qualifying EEA productions, capped at £1 million a year. The game will then be certified as ‘British’.

So far the scheme has been praised by video game trade bodies Ukie and The Independent Game Developers Association (TIGA), with Dr Richard Wilson, chief executive of TIGA predicting that “over five years the tax relief will create and protect 10,300 direct and indirect jobs and create and protect approximately £450 million investment expenditure by UK studios.” The EU Commission for the scheme voiced similar sentiments, stating: “without this support the number of new culturally British games is likely to decline considerably.”