CREC027000 - Qualifying productions: video games
Meaning of ‘video game’
The term ‘video game’ is not itself defined within the legislation. It is therefore given its ordinary meaning.
A video game is an electronic game that is played through a video device. The video device and equipment required to play the game are separate from the game itself, even if the two are sold as a single product. The video game is the software and other electronically stored content and information, rather than the hardware it is played on.
A video device means any device capable of producing two- or three-dimensional moving images. Traditionally this would mean only a device including or attached to a television or monitor, but now it includes devices such as mobile phones and tablet devices as well as handheld portable games machines.
Where a video game is designed to be played on a games machine, development of the hardware is not an element of design of the game. This is true even if the hardware is only capable of being used in conjunction with the video game.
The electronic game includes all the electronic content of the game that is required to play that game. This includes audio content such as sound effects and soundtrack. It also includes any elements that are not interactive, such as filmed or animated sequences for narrative purposes, or options required to adapt the game to suit the desires of the player.
A game must have sufficient capability for a player to directly control actions and events in some way. There must be an uncertain outcome for the product to be a game, where the player’s actions have a meaningful result in the outcome.
Excluded games
For the purposes of the Video Games Expenditure Credit (VGEC), ‘video game’ does not include anything that is produced for advertising or promotional purposes, or for the purposes of gambling.
The restriction on advertising or promotional purposes is intended to disqualify games which are predominantly produced for advertising or promotional purposes. This would prevent a free video game designed to promote a film or animation from receiving relief.
It is not intended to prohibit advertising being carried in games. This is common practice for mobile phone apps, which will typically offer a free version which carries advertising and one which may be purchased.
The rule also does not automatically disallow games which are based on existing IP. For example, a video game based on a TV series would be eligible provided it was not produced specifically to advertise the series, but merely to further exploit a popular franchise.
Gambling is defined by reference to the Gambling Act 2005 (GA2005). This therefore means that gambling includes activities described as:
gaming (GA2005/S6)
betting (GA2005/S9)
participating in a lottery (GA2005/S14)
In relation to the Gambling Act, 'gaming' means playing a game of chance for a prize. A game is a 'game of a chance' even if it also involves an element of skill or where the element of chance can be eliminated by superlative skill. The prize must be money or money's worth. There is no need for there to be any other participators in the game, nor does the player have to risk losing anything.
Video games can involve elements which are akin to gambling except for the fact that real money (or a currency that carries money’s worth) is not used. These games are not made for gambling purposes. For example, a poker video game would not constitute gambling unless there was a mechanism within the video game itself for winning prizes of real money or money's worth.
If a video game includes the ability to “cash out” a currency of real monetary value that may be won through skill or chance within the game, then it is likely that it will constitute gambling. This applies to cryptocurrencies and NFTs acquired in a video game that can be traded/sold outside of the video game itself.
If a game has a closed economy which allows players to put money into the game but not extract money or money’s worth, that game will not constitute gambling. Many video games include the ability to purchase more resources for use in the game or have prizes which can only be used in the game itself (e.g. cosmetic items). This is a common means of monetising video games in the mobile phone app market. The inclusion of such purchases and prizes may not in itself be an indicator of gambling, provided there is no marketplace which allows such items to be “cashed out.”
If you have any concerns, please contact the Creative Industries Unit (CREC010700).
Qualifying criteria – section 1179FA Corporation Tax Act (CTA) 2009
A video game is a qualifying video game for VGEC if it meets the following criteria:
it is intended for supply
it is certified as British (see CREC028000)
at least 10% of core expenditure on the game is UK expenditure (see CREC029000)
Meaning of ‘supply’
‘Supply’ means supply to the general public. ‘Supply to the general public’ means being made available for members of the general public to play. The game may be for sale in a physical format such as a disc, or distributed via the internet.
The fact that a video game is certified as British does not affect whether it is intended for supply. The British Film Institute (acting on behalf of the Department for Culture, Media and Sport) will certify video games that are not so intended.
A video game may qualify as ‘intended for supply’ even if the intention is to gain a significant proportion of the earnings from supply overseas, rather than in the UK (although a British video game would normally be expected to be intended for UK supply).
Intention
The legislation does not specify whose ‘intention’ this should be, but at any time there will normally be someone entitled to determine how the video game is to be exploited. This would generally be the directors of the development company. However, there may be cases where someone else has a prior claim.
It is not necessary for the video game to actually be supplied to retailers or made available via the internet to meet this condition. However, if it was not eventually supplied, the question arises of whether it was ever so intended (and, if so, when the intention changed).
If there is any doubt about the intention, the following factors could count in favour of the video game being intended for supply:
a finance plan written on the basis that the video game will be supplied
a video game of a type commonly supplied
development in a format suitable for supply
payment to programmers, animators, voice artists and subcontractors on terms in line with those prevailing for video games
the relevant person can demonstrate, at the end of the relevant accounting period, the intention to supply the video game to the general public
Supply condition not met
A video game can only be a qualifying programme for VGEC for a particular accounting period if, at the end of that period, it is intended for supply.
If a game is not intended for supply at the end of an accounting period, it cannot qualify for VGEC in respect of that period or any subsequent accounting period (but credits given in previous periods are not clawed back).