VGDC50130 - Eligible expenditure: ineligible expenditure

S1217CF Corporation Tax Act 2009

Video Games Tax Relief (VGTR) in respect of a video game trade by a Video Games Development Company (VGDC) is only available on elements of core expenditure (VGDC50010) which is also European expenditure.

Completion bond and other forms of insurance

Completion bonds are a form of insurance against the risk that a video game may not be completed. Costs of the completion bond do not qualify for VGTR. They are not incurred on video game development activities.

Other forms of insurance, more directly concerned with the video game development activity itself, may qualify.

Development costs

See VGDC50120 - these costs are not part of core expenditure.

Entertaining

Cost related to hospitality and entertainment are disallowable under normal rules.

Publicity and promotion

Publicity and promotional costs do not qualify for VGTR. They are not concerned with the making of the video game.

Audit fees

These do not relate to video game development activities. They do not qualify for VGTR.

Bank interest and charges

While interest itself is regarded as part of the costs of financing a video game, and therefore not incurred on video game development activities, charges incurred by banks for facilities that are needed by the VGDC to engage in video game development activities are part of the costs of video game development. This includes charges associated with the maintenance of a current account from which suppliers, cast and crew can be paid.

Furlough payments, including those met by the Government through the Coronavirus Job Retention Scheme (CJRS)

Tax relief is only available on expenditure on ‘video game development activites,’ which are defined as activities involved in designing, producing and testing the video game, as per s1217AC(1). To qualify for an additional deduction, expenditure must also meet the definition of ‘core’ in s1217AD: it must be on designing, producing or testing the video game.

When a company places an employee on furlough, the employee must cease work. The employee is not carrying out video game development activities and is not working on designing, producing or testing the video game.

Staffing costs in respect of an employee on furlough are therefore not considered by HMRC to be on video game development activities, and do not constitute production expenditure. Such payments are not considered to be costs of the separate video game trade and are not eligible for tax relief.  This applies equally to all furlough payments, whether or not they are reimbursed by the CJRS, and includes any ‘top-up’ element. If an employee has been placed on flexible furlough, then any payment in respect of the furloughed time will not be eligible.

Holiday pay and sick pay are statutory requirements. HMRC considers them to be a necessary cost of employing staff and part of the cost of their working time. Any period during furlough which is taken as annual leave or recorded as sick leave is potentially eligible for relief, and should be apportioned in line with work done.