The UK now has a video games tax break

At long last, the EU has approved the UK’s video games tax break, a move which signals fundamental changes in the way that games are made in the UK, EU and beyond.  Personally, I’m very glad to be able to write that sentence; longtime readers will know I’ve been writing about the UK’s twists and turns on this matter since 2009!

You can expect to see lots more information and insight about the UK video games tax break on this site in the future.  For now though, here’s a quick guide to the UK video games tax break written by my colleague Paul Gardner and me together with UK interactive entertainment industry association Ukie. Continue reading The UK now has a video games tax break

The games tax break doesn’t mean Grand Theft Auto: Weston-Super-Mare!

Earlier today I wrote a quick update on where we are with the UK games tax break.  A few well-intentioned Twitter followers of mine immediately joked that games being required to go through a ‘cultural test’ to gaint the tax break would result in red telephone boxes throughout games, etc etc.

This is a bit like the Guardian’s Charles Arthur’s joke that the games tax break might lead reducing Grand Theft Auto games to using British provincial towns like Weston-Super-Mare instead of New York etc.  All of which shows a fundamental misunderstanding of how the cultural test will work – a mistake which, albeit understandable, is so pervasive in the industry I thought I’d write a quick post about it specifically. Continue reading The games tax break doesn’t mean Grand Theft Auto: Weston-Super-Mare!

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…  Continue reading The UK games tax break – a quick update

The UK games tax break: opportunities and challenges

The UK government has just announced that it will grant production tax breaks to the games industry.  This was a bit of a surprise: the previous Labour government had agreed to grant tax breaks, but the new Tory/Lib Dem coalition government had frowned on it until this announcement.
This is ofc great news for the UK games industry and I’m sure there’ll be a LOT of discussion about it in the coming days.  There’ll need to be: there are a number of challenges to overcome over the next several months before games businesses can take advantage of a UK games tax break.  I wrote about those challenges the last time a games tax break was approved, and they still hold true now: Continue reading The UK games tax break: opportunities and challenges

The 2011 UK Budget and the games industry

The UK Government has just published its 2011 budget, which contains a pretty mixed bag for the games industry.  This is what my colleague Cliona Kirby of Olswang had to say about it:

“A lot of mixed messages in today’s Budget for the games industry.

The proposal to significantly improve EIS and VCT reliefs, in particular, by increasing the annual investment limit to £10 million from £2 million (albeit with effect from 6 April 2012) should assist games companies in obtaining development finance. EIS relief becomes much more interesting at this level. We are currently lobbying for other beneficial changes to make the rules more flexible. Similarly, the increase in Entrepreneur’s relief from £5 million to £10 million may persuade business angels to invest in games. Perhaps the changes announced today will go some way towards improving the funding gap and enabling games companies to retain their valuable intellectual property. But more is needed here – a meeting of minds between the games developers and VCs/business angels.

Whilst the changes to the R&D rules to increase the SME scheme rate of R&D relief to 200% from 1 April 2011 and 225% from 1 April 2012 will be welcomed, we would like to have seen further simplification in the claims procedure and an extension of the definition of qualifying spend to apply to more games development expenditure.

Disappointingly, there was no extension of the patent box to apply to games companies (although a further consultation paper is expected in May). Whilst we can understand that extending the patent box to apply to all IP may be too costly for the UK, we would favour an R&D or “innovation” box enabling games companies to benefit and to encourage them to hold their IP in the UK. As ever, due to our previous lobbying, we would have welcomed a targeted games tax relief but it seems that the Chancellor has for now not changed his view that this is “poorly targeted”.”

So, no games tax break for the foreseeable future, but indirect tax measures focused at the tech sector generally should help the games industry.  No doubt this won’t stop the calls for a full-on games tax break, but in the meantime hopefully these new measures will help the industry’s bottom line…

Image credit: Guardian

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US developer sues Michigan over games tax break

Here’s an interesting angle on the games tax break debate: a US developer is suing two branches of the state of Michigan for denying his application for a gamex tax break (via Detroit Free Press)

Nathaniel McClure, CEO of developer Scientifically Proven, said that he moved his company to Michigan to take advantage of its 42% games tax credit, which was introduced in 2008 (although apparently not a single developer has yet to benefit from it).  However, the State offices overseeing the tax credit (the Michigan Film Office and the Michigan Department of Treasury) refused Scientifically Proven’s application on the basis that it did not have overall control of the IP in the game it is developing, Man vs Wild.  Rather, they argued the IP was controlled by the publisher.  Cue lawsuit from McClure (presumably for both a change in the state’s position as well as for compensations/damages).

So, why is this interesting? 

(1) It goes to show, once again, that control of IP is a critical issue in designing a games tax break.  The tax break draftsmen need to think carefully, and the games industry needs to be clear itself, on who should obtain the games tax break and whether it should depend wholly or partly on control of IP.  (Although clearly ofc that will not be the sole test – there would also have to be a range of financial tests etc).

If and when the UK (or any other European) government decides to back a games tax break again, this point would need to be considered as carefully as the ‘cultural test’.

(2) Do the employees or officers themselves have the right to challenge aspects of the games tax break?  The original Detroit Free Press article suggested that McClure might be suing the state himself, which seems a little odd to me – on what legal basis could he argue for compensation from the state based on its refusal to grant a tax break to his company?  The obvious cause of action is the company against the state.  But, given the propensity of litigants to start as many lawsuits as possible when there is money at stake, I wouldn’t be surprised if we did actually see personal lawsuits over tax breaks (US/Canadian readers, have you seen anything like this?)

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UK govt snubs games tax break…again

David Cameron, the UK Prime Minister, has managed to snub the games tax break once again but failing explicitly to answer a question put to him in Prime Minister’s Questions as to why his government had failed to implement the tax break (thanks to Develop for this one).

Dundee MP Jim McGovern (Labour) asked Cameron to explain why, in the emergency Budget last month, the Chancellor George Osborne had (infamously) described the games tax break as “poorly targeted”. Cameron sidestepped the issue altogether and talked about the reduction of corporation tax instead.  He said:

“We believe that what matters is having low tax rates, and what we did in the Budget – which the House voted on last night – was to cut the small company rate of corporation tax back down to 20p from 22p and set out a path for getting corporation tax down to 24% by the end of this Parliament…That would give us one of the lowest tax rates in the G8, the G20 or anywhere in Europe. That is what we will benefit from, but I note that the Labour party voted against those tax reductions”.

That’s unfortunate. It doesn’t seem to bode particularly well for the games tax break (or the games industry for that matter) if Cameron couldn’t even be bothered to pay lip service to the UK games industry. What a wasted opportunity. Still, kudos to McGovern for raising the question.

Video Games Tax Break is axed by UK government

The proposed UK video games tax break is to be axed, according to the Emergency Budget published today by the new UK government.  The announcement follows several weeks of speculation about the new Government’s stance on the tax break, which followed the Conservatives first apparently promising pre-election support for the tax break but subsequently refusing to commit to it in their election manifesto.

Clearly, disappointing news for the games industry – particularly after the previous Labour government had promised to introduce the tax break if it won power for another term (more on that here).  What’s even more disappointing, however, is the Chancellor George Osborne’s comment that the proposed tax break was “poorly targeted“.  That, plus the wider austerity measures being proposed by the Government, drops a pretty heavy hint that the Government is going to take some persuading before it accepts the tax break in the future.

Cliona Kirby, a Tax Partner at Olswang (and expert on the games tax break), wrote on the Olswang Budget Blog about all this:

“After weeks of speculation, the Government has broken its silence on the topical issue of video games and decided to axe the relief announced by their predecessors. At a time when the UK needs to stimulate business in the UK this is very disappointing news. We are surprised that a relief aimed at keeping this growing and innovative industry in the UK was described as “poorly targeted”. The Financial Times recently reported that the global video games market will expand to be three times the size of the recorded music market by 2014. This announcement without doubt puts the UK video games industry on the back foot in terms of competing with other countries such as France and Canada that encourage both games companies and developers to relocate with the offer of targeted tax breaks. The effect of such continued corporate and individual migration will be a loss of revenues derived from the profitable games industry for the Treasury.

It is hoped that the Chancellor’s reference to “their longer term approach to intellectual property” and the “proposals on R&D in the Dyson report” will also benefit video games. We would strongly recommend that the Government looks to continue to develop the UK as a hub for the creative industries through incentives such as lower rates of corporation tax on intellectual property.”

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What the new UK government means for the UK games industry

Wardrox over at Nukezilla has written an interesting post about what the new LibCon government means for gaming, which talks about the new government’s approach to business stability, gaming, games tax relief, education and skills and piracy and crime.  Worth reading – check it out.
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TIGA sets out its games tax break proposals

TIGA, the games industry body, has published its election manifesto for the games industry, in which it sets out its proposals for how the recently announced games tax break should be structured in the next Parliamentary term (via Develop).

TIGA’s tax break proposals are as follows:

“The Government announced in the Budget on March 24 that it would introduce Games Tax Relief. TIGA believes that Games Tax Relief should be introduced as soon as possible.

It should have the following attributes:

1) Eligibility for the Games Tax Relief would cover any company within the scope of UK Corporation Tax.

2) Video games would need to pass a cultural test, scoring against criteria of European heritage and game locations, languages, technical or creative technological innovation, narrative, and location of development and key development staff.

3) The Games Tax Relief would be calculated and applied in a similar way to the existing tax relief for British films. A development company would be entitled to an additional deduction in computing their taxable profits equal to the UK expenditure incurred in developing a game, or 80 per cent of the total expenditure incurred in developing a game, whichever is the lower.

The development company would then be entitled to a tax credit calculated on the amount of the deduction, which it would either be set off against the income from the game or recovered as a payment from HMRC.

4) The Games Tax Relief should have three tiers of benefit: 20 per cent of core expenditure for budgets above £6,000,000, 25 per cent for budgets over £3,000,000 but less than £6,000,000 and 30 per cent for budgets of over £100,000 but under £3,000,000. The three tiers are designed to reflect average production budgets of video games on different games platforms, and correspondingly different sizes of company.

If Games Tax Relief is to assist the production of culturally British mobile games then it would be advisable to extend relief to games with a budget of £50,000 or more.

5) An independent organisation with knowledge and experience of video games production would administer the cultural tests, checking submission criteria are met and policing the Relief. It would issue interim certificates or letters of comfort confirming a product has passed or provisionally passed the cultural test to ensure candidate projects are funded.”

We’ll write a more detailed analysis of these propsals later on, but suffice to say they broadly accord with our views of the issues that the tax break will need to deal with.

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