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Ukie responds to HM Treasury consultation on Audio-visual Tax Reliefs: read now

Ukie’s responds to the Audio-visual tax reliefs consultation

Ukie has submitted its response to the Audio-visual tax reliefs consultation, in which it urges the Government to take a ‘do no harm’ approach to the Video Games Tax Relief (VGTR), ensuring that the overall scheme remains attractive, accessible and effective for all sizes of games company as it has been since its introduction in 2014.

The consultation, which aims to revisit the structures of the UK’s audio-visual tax relief regime, which includes VGTR, recommended following changes to the VGTR:

  • Removing the eligibility of European expenditure from VGTR and replacing it with a requirement for expenditure to be 'used or consumed' in the UK.
  • Revising or removing the current subcontracting cap of £1million, and seeking views on whether companies would be likely to raise or lower their level of subcontracting if European expenditure is excluded.
  • Removing the 80% qualifying expenditure cap, but potentially lowering the overall credit rate, to avoid a substantial additional cost to the taxpayer.

In the wake of the consultation, Ukie launched an industry-wide survey and met with Industry and Government officials to inform its formal response. The responses throughout the survey and Ukie’s wider engagement paint a clear picture: 89% of respondents agreed that since its introduction in 2014, VGTR has provided vital support to grow the Video Game Industry, being a net positive relief supporting developments from the smallest independent game development studio through to the largest AAA productions.   

Following consultation with industry, Ukie has called on Government to maintain the generosity and simplicity of any new regime and also believes there are opportunities to enhance the effectiveness of the relief, including by considering further policy changes, such as skills investment and co-development treaties. We will continue to engage with relevant departments as the consultation progresses through the next stages.

In summary, the key points arising from the consultation are:

  • There is an overarching need to ensure any reforms to VGTR do not affect its generosity or competitiveness in comparison to international alternatives. The UK faces competition from an increasing number of generous tax regimes in Europe and the rest of the world as well as other measures from other territories which have been designed to boost their respective games industries. We must ensure that any reforms to VGTR do not make it less generous or more difficult to claim and urge Government to consider a range of other measures to boost VGTR and the UK games industry.
  • The removal of EEA expenditure from qualifying expenditure in VGTR claims would have a negative impact on UK games companies. 79% of respondents to Ukie’s industry survey felt the removal would have a negative or very negative impact on UK games production which could result in UK based projects being reduced in scope or moved elsewhere in the world.
  • Removing the eligibility of EEA expenditure is likely to increase costs for businesses which would not be balanced out by a removal or revision of the subcontracting cap. Whilst the removal or revision of the subcontracting cap would be welcome, this would not offset the negative effect of a removal of EEA qualifying expenditure from the VGTR given the industry’s current use of and access to skilled EEA labour. Furthermore, a requirement for all expenditure to take place in the UK would push up costs and exacerbate existing shortages of specific roles for aspects of game development.
  • There is the risk of unintended consequences if these measures are carried out at pace without a corresponding look at skills education, talent pathways, as well as further measures to increase the competitiveness of VGTR internationally. The UK remains an attractive destination to make and sell games, but the industry faces an acute challenge in finding skilled workers for a variety of roles and functions, pushing up the cost of UK productions. These changes risk exacerbating these challenges.
  • More information is needed from HMT/HMRC on ‘used or consumed’ definitions, as well as clear information around the timetable for implementation of expenditure credit system to allow businesses to plan for these changes. We are concerned that definitions for ‘used or consumed’ for VGTR has not been available prior to the consultation and urge HMT/HMRC to clarify this urgently in order for businesses to fully understand the impact of these changes. Similarly with a move to expenditure credits – clear guidance as to the effective rate and implementation timetable are vital.
  • New US tax rules must be prepared for. For US-headquartered companies investing in UK development, recent changes to the US Foreign Tax Credits rules will seriously reduce the attractiveness of VGTR unless changes are made.
  • Government should explore ways in which VGTR can be expanded to encourage co-development projects as is the case in Film and High-end TV. The games industry would actively seek more opportunities for co-development and would likely see an increase in opportunities for UK studios from abroad if co-development was more easily eligible for VGTR. We encourage HMT/HMRC and other Government departments to consider ways in which eligibility for VGTR can be optimised to encourage co-development projects.

You can download Ukie's full response to the consultation here.

If you would like to contact the policy team for any further information about the consultation or how to get involved with Ukie’s wider policy work please contact dominic@ukie.org.uk