Ahead of the game

Top five tax tips to take the lead in gaming

After a two year deliberation period, the European
Commission recently gave full approval to a generous tax
relief available to companies operating within the UK Video
Games sector. The Video Games Tax Relief offers a tax
deduction or repayable tax credit to UK companies who
develop video games.
This new tax relief, available to corporate entities, could
help substantially reduce the cost of game development,
while enabling companies operating within the UK games
development sector the opportunity to play on a level
playing feld with entities operating in other jurisdictions
such as the US and Canada. It is estimated by TIGA
that the implementation of this relief will secure nearly
5000 highly skilled jobs and will generate 188 million in
investment in the sector in the UK.
However, the Video Games Tax Relief isnt the only
important tax incentive currently available to this growing
and increasingly important sector. Businesses should
update their compliance procedures in light of recent
changes in the regulatory environment, such as the Place
of Supply rules for VAT and Auto Enrolment. There are also
opportunities available under the R&D tax relief and Patent
Box regimes.
Weve identifed the top fve tax considerations and
opportunities for companies operating in the Video Games
sector in Scotland.
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Video Games Tax Relief
Initially announced in the Budget 2012 and given nal approval from 1 April 2014, the Video Games tax relief provides
support for the growing video games sector in the UK. There are currently around 500 video games development
studios in the UK, employing approximately 9,000 staff. In terms of benet, an additional tax deduction of up to 80%
of qualifying expenditure may be available; assuming a tax rate of 21%, the benet could equate to 16.8% of qualifying
spend. Where a loss arises, it may be possible to surrender the loss for a cash credit of up to 20% of the qualifying
spend. In order to qualify for this relief, both the company and game must meet certain conditions. These include the
fact that there must only be one video games development company per video game, with the company most directly
engaged in the development of the game. In respect of the game itself, it must be for distribution to the general public,
must pass a cultural test (become certied by the Secretary of State) and at least 25% of the expenditure considered
core must be incurred in the European Economic Area.
Research & Development
R&D tax relief has been around for over 10 years and recent changes mean that both SME and Large companies
should review their activities accordingly. Guidelines from the Department for Business Innovation & Skills refer to
whether a company is experiencing technological uncertainty in their business activities. If resolving this uncertainty
leads to technological advancements being made, there may be an opportunity to make a claim. At current
corporation tax rates (21%) SMEs can make tax saving of 26.25 per 100 spend, while large companies can make a
tax saving of 6.30 per 100 spend. SMEs can also surrender losses for a payable cash credit (paid at 11% of qualifying
spend, rising to 14.5% as of 1 April 2014). In addition, repayable cash credits have recently been introduced for large
companies under the RDEC scheme which will run alongside the existing Large Company Scheme until 1 April 2016
(at which point it will replace it). It is important to consider all potential claim opportunities and Grant Thornton
have broad experience across a wide range of industry sectors including the Video Games Industry.
Patent Box
From April 2013, where a company derives prots from patents granted by the UK Intellectual Property Ofce or
the European Patent Ofce (whether from the sale of products incorporating patented technology, from licensing
income or from services derived from patented technology) and has been involved in the development of the patented
technology, a 10% rate of tax should be available. This is among the most generous tax reliefs for patented technology
in the European Union and a product need only incorporate a single patented component in order to be eligible for
treatment within the patent box. Enhanced deductions for R&D relief can be given against prots not included within
the Patent Box thus there are benets of the two reliefs working together. Companies should consider carefully existing
patents or products on which a patent application could be made to maximise the benet of this generous tax relief.
Place of Supply (VAT)
On 1 January 2015, changes will be made to the European Union (EU) VAT place of supply of services rules involving
business to consumer (B2C) supplies of broadcasting, telecommunications and e-services (digital services). E-services
include: video on demand, downloaded applications (or apps), music downloads, gaming, e-books, anti-virus software
and on-line auctions. Currently, the place of taxation for intra EU digital supplies is determined by the location of
the supplier of the services. However, from 1 January 2015, the place of taxation will be determined by the location
of the consumer, and digital supplies will be taxed at the VAT rate applicable in the consumers Member State. This is
a signicant change. You may need to keep additional information that was not required before in order to work out
the country in which VAT must be paid. The good news is that affected traders will be able to utilise the Mini One
Stop Shop (MOSS) to account for VAT in any EU Member states where they are not established. This should ease the
compliance burden and avoid the need for multiple additional VAT registrations. Are you ready?
Auto Enrolment
The biggest pension shake up to affect employers is here, now all employers have the responsibility to offer
employees access to a pension scheme and to contribute to it. The individual will be able to opt out but if they do
nothing, they will automatically remain in the scheme. Many staff not automatically enrolled must be told of their
right to join. Each employer has a staging date based on the number of staff on their payroll, by which they will need
to comply with the rules. The rst of these staging dates was October 2012, and from July 2014 employers with less
than 90 employees will be affected. A system of nes has also been introduced for non-compliance, therefore it is
imperative that all employers are aware of their staging date and are prepared for the changes.
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