The UK has a number of tax incentives and reliefs which may assist game developers and publishers both in securing investment (such as the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS)), and also in developing specific games products (such as the Video Games Tax Relief and the Research and Development Tax Relief).
Taxation of games businesses
Games businesses which trade in the UK and are resident in the UK, or carry on their trade through a UK permanent establishment, will generally be subject to corporation tax in the UK on their trading profits.
Currently the UK's main rate of corporation tax is 21%, but from 1 April 2015, this will reduce to a top rate of 20%.
- Certain regulated gaming activities may not constitute a trade for UK tax purposes (see article on eGaming).
- Depending on the nature of the games-related activities, businesses may also be subject to other taxes.
Tax breaks for games businesses
Seed Enterprise Investment Scheme
The SEIS provides generous tax incentives for UK tax resident individuals who make equity investments in new (and often high-risk) startup businesses (such as developers or publishers) by subscribing for new ordinary shares. A company may raise up to £150,000 under the SEIS. Tax relief is available in relation to income tax and capital gains tax (CGT) subject to time limits and meeting the qualifying criteria for an investor or company.
Enterprise Investment Scheme
For larger or more established games businesses which do not meet the requirements for SEIS, EIS may be available. This is similar in structure to SEIS - providing income tax and CGT reliefs for UK tax resident individual investors who subscribe in cash for ordinary shares in qualifying companies. A company may raise up to £5m a year under the EIS. This limit is aggregated with investments under the Venture Capital Trust Scheme and other notified State Aid received by the company.
For businesses which have already raised funds under the SEIS, a further EIS investment can only qualify for EIS relief once at least 70% of the SEIS monies have been spent on the company's qualifying activity.
Again, time limits need to be observed and qualifying criteria need to be met.
Video Games Tax Relief
The UK's Video Games Tax Relief provides tax relief to incentivise the production of "culturally British" video games in the UK. It should, however, be noted that the Video Games Tax Relief will not be available to developers of regulated gaming (i.e. eGaming / gambling) products.
Relief is potentially available for a wide range of "video games", including games developed for consoles, computers and apps. To qualify for relief, games must meet a number of qualifying conditions including that they are developed for commercial exploitation.
The relief is given through the UK corporation tax system so it is only available to UK tax resident companies or non-UK resident companies which have a UK permanent establishment.
Research and Development Tax Relief
The UK offers specific incentives through the tax system to encourage UK resident companies, and non-UK resident companies which have a UK permanent establishment (e.g. a branch or an agency), to undertake innovative research and development projects in the UK.
Research and development is widely drawn and can encompass the development of games and games platforms. The key point is that to qualify as research and development, the project must seek to achieve an advance in science and technology or address technological or scientific uncertainties and be related to a trade that is, or will be, carried on by the company.
The amount of relief available will depend on which of the two research and development relief schemes the company qualifies under: the SME scheme or the larger company scheme.
Claims for relief under either scheme are made in the company's UK corporation tax return and must be made within two years of the end of the company's accounting period in which the expenditure was incurred.