For many years the UK games industry has campaigned for assistance from the British government to help balance out the tax break advantages currently enjoyed by developers abroad which has led to a drain in talent from the UK. On 11th December 2012, the UK government published details in draft legislation on how games developers are able to claim a 25% corporation tax relief on games which is expected to come into effect from April 2013. This eligibility lies in the video game being able to meet the following criteria:

1. The game is intended for supply to the general public;

2. The game is a British video game which meets the "cultural test"; and

3. At least 25% of the core expenditure on the video game incurred by the developer must be UK expenditure.

The Cultural Test:

The key here is meeting the "cultural test", where, in order to qualify as a British video game, 16 points must be achieved out of a possible 31.

The Cultural Test awards points in relation to:

1. the content of the game (the locations, characters, story, language of the game) – maximum of 16 points;

2. the contribution of the game to the promotion, development and promotion of British culture – a maximum of 4 points;

3. the location of the work being carried out for the game – a maximum of 3 points; and

4. the personnel involved in the development of the game – a maximum of 8 points.

Other Key Points to Note:

  • There is no requirement of a minimum spend which is a great advantage to smaller developers.
  • The government will allow all direct production expenditure to be eligible for relief, this includes "relevant" quality assurance but will exclude service maintenance costs.
  • Any early stage costs playing a key part in the development process will also be eligible for tax breaks once the develop has made a commercial decision to develop a complete game.
  • Any games developed with the "primary purpose" of advertising and gambling will be excluded from the new tax regime but this will not preclude product placement or in-game advertising within an eligible game.

The introduction of the new tax regime for games developers is a huge relief to the industry and definitely a step in the right direction in attracting business and talent back to the UK.

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