As we said yesterday, even up until the announcement itself there was still uncertainty as to whether the government would go for or against the tax break, or adopt a halfway position. The Chancellor, Alastair Darling, said when announcing the new measure:
Sounds good, eh? But we’re a long way from those kinds of considerations. At the moment, nothing really has been given away yet about what form the government thinks the tax break should take. It’s clear though that there a lot of challenges to be overcome before games companies can take advantage of the games tax break:
- What form will the games tax break take? The Chancellor has said it should be based on the films tax credit which after a lot of research on the matter, we think is the most efficient way to deliver the tax break. But how will this be tailored to the unique features of the games industry? Just as importantly, what lessons can be learned from the implementation of the films tax credit?
- Given the EU legal considerations (see above), the key test for obtaining the tax break will be whether it would promote “culturally significant video games that might not otherwise be made in the UK“. The government will need to set out guidance as to what that means for games.
- That said, it does not just mean “GTA: Weston-Super-Mare”! A wider definition of ‘culturally significant’ has become widespread in the films industry and the same logic could be applied to games. For examples, games which reflect European culture (e.g. Empire: Total War) could qualify or games which are made in the UK and thereby could be said to reflect UK culture even if they don’t specifically refer to the UK (e.g. the forthcoming MMO APB). In other words, the test could be whether the game is sufficiently linked to the UK and therefore to UK culture, not whether the games are about UK culture. This will boil down to the government trying to tread a fine line between complying with the law while still making the tax relief useful. With the films tax credit, the government has adopted a points-based system, which they could also do with games.
- Who will benefit from the tax break? There is a good case for arguing that both games developers and publishers based in the UK and overseas (provided the game is made in the UK) should be entitled to benefit so that the relief encourages both inward investment and the UK indigenous games industry to achieve its aims.
- How will games be defined for tax break purposes? Clearly, games must be defined broadly enough to encompass the myriad of games currently available (across an array of platforms) and those developed in the future. There’s lots of talk in the blogosphere about how difficult this could be, and clearly a lot of thought will be needed, but it’s by no means impossible. Governments and lawyers have to deal with far more difficult drafting exercises all the time.
- How much will the tax break be worth? It needs to be high enough to encourage continued game development in the UK by existing players and new companies to start making games here, but not so high the Treasury balks at it.
- Lastly, what types of development spend will qualify for tax relief? How will this interact with the research and development tax reliefs?
- Who will administer the tax break? Will the government set up a new body or use an existing body? There has been speculation that the Film Council could step in to adminster the games tax break, for example.
Interested in tax breaks?
In the meantime, if you’d like to discuss the tax break or how it could work for you, you can contact us here.