UK Game Tax Breaks Welcomed

by Amanda Banks, Tax-News.com, London

30 March 2010

The UK body, which represents the nation’s computer games industry, TIGA, has lauded the government’s decision to introduce tax relief on the production of video games in the March budget as a positive move for the industry and for the wider UK economy.

Prior to the introduction of the relief, the UK games industry was struggling to keep up with its principal competitors in Australia, Canada, France, South Korea, and the USA, all countries of which offer regional or national tax breaks for games production. In recent months TIGA has been at the forefront of lobbying efforts for the introduction of tax concessions to prop up the industry.

The UK video games industry is an important part of the UK economy, contributing GBP1bn to the UK’s Gross Domestic Product (GDP), sustaining 27,000 jobs, including over 9,000 highly skilled roles in game development. However, due to lack of government support until now, since July 2008 the number of employees at British game development studios fell by 7% and 15% of British firms went out of business. Between 2006 and 2009, the UK fell from third to fifth place in global sales charts, overtaken by Canada and South Korea, whose studios are heavily government supported.

The newly introduced Games Tax Relief is to operate in a manner similar to UK Film Tax Relief. In order to qualify for Games Tax Relief, a company would have to fall within the scope of UK Corporation Tax. Additionally, video games would need to pass a cultural test, scoring against criteria of European heritage and game locations, languages, innovation, narrative, and location of development and key development staff. Video games that passed the cultural test would then be entitled to benefit from Games Tax Relief. If the game makes a profit, the development company would then be able to use the Games Tax Relief to reduce the amount of tax payable on that profit. If, on the other hand, the game makes a loss, the development company would be able to use the Games Tax Relief to offset losses.

TIGA’s research indicates that over five years Games Tax Relief will create or save around 3,550 graduate level jobs; increase and safeguard GBP457m in new development expenditure and ‘saved’ development expenditure that would be lost without the relief; and generate GBP415m in tax receipts for the Treasury, comfortably exceeding the cost of Games Tax Relief. Games Tax Relief would also encourage game developers to adopt new online, more sustainable business models and sell directly to the consumer.

Commenting, Richard Wilson, TIGA CEO, stated:

“For Games Tax Relief to be announced in the Budget is the decisive breakthrough that TIGA has campaigned for. Ministers have made the right decision at the right time for the right industry. Government ministers are to be warmly congratulated for their visionary decision. TIGA now looks to the opposition parties to give their full support to Games Tax Relief in the Finance Bill.”

Recommended