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No tax please, we're British – Culture test for video games tax relief comes into force

29 August 2014. Published by David Cran, Partner and Adam Cusworth, Associate

On 19 August 2014, regulations to determine a video game as "British" for the purposes of corporation tax relief for video games development came into force.

The corporation tax relief (which is set out in Part 15B of the Corporation Tax Act 2009) amounts to a 25% repayable tax credit on qualifying EEA production expenditure up to a cap of £1 million per game, and is effective from 1 April 2014.

The new regulations (which can be found here) introduce a points-based test to determine the classification of a video game as British for the purposes of the corporation tax relief. They are largely the same as the draft regulations published in April 2013.

Under the regulations, a video game will be certified as British if it passes a 'cultural test'. This is achieved if a game scores at least 16 out of a possible 31 points under the regulation (and scores the minimum required score where applicable). Points are awarded for the:

  1. extent to which the game is set in UK or the EEA;
  2. number of the video game characters that are from the UK;
  3. extent to which the game depicts a British or EEA story;
  4. percentage of the original dialogue that is recorded in the English language or a recognised regional or minority language (which includes British sign language);
  5. contribution of the video game to the promotion, development and enhancement of British culture;
  6. location of certain aspects of production;
  7. and residence of the personnel involved in making the video.

Due to both the wide variety of permutations by which a developer can score the required 16 points, and the introduction of EEA elements into the cultural test, the regulations offer developers flexibility to secure the corporation tax relief, which will no doubt be welcomed. The introduction of the £1 million cap for however, will inevitably lessen the potential upside for larger developers.

Developers seeking to benefit from the regulation will need to apply to the Secretary of State for certification, and the application must be supported by evidence.