The UK games tax break – a quick update

It’s been a while now since the UK government made the surprising but welcome announcement in March 2012 that it would introduce a tax break for the games industry.  What’s happened since then? 
Consultations, consultations, consultations… 
The government announced that it would hold a consultation process with stakeholders, to be split into two parts.  The first, run by HM Treasury, would be a discussion of the overall structure and qualifying conditions of the tax break and the second, run by the Department for Culture, Media and Sport (“DCMS”), would be about the ‘cultural test’ aspect of the tax break.  More below… 
Consultation #1: structure and qualifying conditions 
From 18 June to 10 September 2012 the government threw the doors open to any comments regarding their proposals (and questions regarding) the games tax break – which you can read here. 
Both TIGA and Ukie (the two industry bodies in the UK) ran a series of consultations around the UK to obtain the industry’s views.  (I attended and spoke at the Ukie sessions, which revealed a fascinating amount of agreements and disagreements about the structure, contents and underlying philosophy of the games tax break.
Here’s the highlights of the Ukie response to the first consultation (in their words):

  • “Government is urged to make sure that the new scheme supports all parts of the industry – encouraging growth from small independent studios, existing bigger studios and attracting inward investment from multi-national companies.
  • Recommending that the rate of relief should be set at 30% for all UK games development.
  • There is no need for a minimum budget threshold for games to qualify for relief.
  • Call for assurances that the new business models and ways of making games which stretches beyond “release” are recognised in the new tax system – which means that games businesses can claim for production costs incurred for DLC or as games continue to be developed and iterated.
  • The games industry should have a specialist team dealing with Tax Returns and Cultural Test applications.
  • There should be a voluntary contribution allowed for companies to invest in talent development and skills.”
You can read Ukie’s full response here (I tried to find the TIGA equivalent but couldn’t – can anyone help?)
Consultation #2: the cultural test
DCMS is now running the second consultation, regarding the ‘cultural test’ for the games break break, running from 1st to 29th October 2012.  Have a read – it explains quite well what the government is proposing, including how it proposes to implement a points-based system to test whether a particular game is particularly ‘cultural’ enough (!) to get the break.  (That said, as the Ukie response below discusses, the test borrows much too much from the film tax break at present).
Why do we need a cultural test?
Under EU state aid rules, a Member State cannot take actions that benefit its national industries to the detriment of other Member State national industries (otherwise the concern is that you’d see rampant national favouritism, which would ruin the EU’s dream of a single European market).  HOWEVER, there is an exception (or ‘derogation’) for appropriate cultural activities.  Even then, activities which fall under that exception need to be approved by Brussels.
In other words, in order for the games tax break not to be blocked by the EU, the UK government needs to show that the tax break is for the benefit of ‘culturally British/European’ games.  Hence the requirement for a ‘cultural test’ (which incidentally is what the UK industry has had to comply with for years, under the UK film tax break).
From the interactive entertainment industry’s perspective, the cultural test is another part of the administrative hurdles which it will have to comply with in order to get the tax break – so it’s well worth thinking through carefully.
Current progress
Again, Ukie (and I think TIGA, though again I don’t have details) is consulting on the subject and have released their draft responseIt’s worth reading as it gives a good overview of the key issues.
Also definitely worth a read is this blog post by my friend Robin Clarke, picking apart the issues in the government’s initial consultation document.
What’s next?
In principle, after the end of the cultural test consultation on 29th October, the draft legislation will be released publicly and be available for comments, amendments etc.  The ultimate aim is for the agreed wording to be submitted to Parliament as part of the next Finance Bill in April 2013, becoming law at some point soon after.  However, approval from Brussels will still be required (that’s the state aid approval I mentioned earlier), so once we get past the Finance Bill 2013 it becomes more uncertain how long it will take before the tax break actually comes into service.
More info once we get to see the draft legislation.  As always, watch this space…

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