VGDC80070 - Avoidance and disclosure: Interaction with Research and Development Credits
S1217C(4) Corporation Tax Act 2009 (CTA 2009) says:
‘But video games tax relief is not available in respect of any expenditure if:
The company is entitled to an R&D expenditure credit under Chapter 6A of Part 3 in respect of the expenditure; or
The company has obtained relief under Part 13 (additional relief for expenditure on research and development) in respect of the expenditure.’
From 1 April 2016, large companies which make a claim for Research and Development (R&D) relief do so by claiming R&D Expenditure Credit (RDEC). There are some circumstances where SMEs (Small and Medium Sized Enterprises) are not able to claim SME R&D Relief and are also entitled to RDEC. The RDEC legislation can be found in Chapter 6A of Part 3 of CTA 2009. HMRC’s guidance starts at page 89700 of the Corporate Intangibles Research and Development Manual.
A company is entitled to claim the RDEC if it has qualifying expenditure for the accounting period. As per the legislation above, any such expenditure is not eligible for Video Games Tax Relief (VGTR), whether or not RDEC is actually claimed. So if a large company is also a video games development company (VGDC), then it doesn’t have a choice between claiming RDEC or VGTR in respect of any qualifying expenditure. If it is entitled to claim RDEC as a result of carrying on a qualifying activity and incurring qualifying expenditure, then it must claim RDEC rather than VGTR. However, if the expenditure is not qualifying for the purposes of RDEC then it may qualify for VGTR provided all the other qualifying requirements for the relief are met.
Where a SME VGDC claims SME R&D Relief on a project, that company cannot receive any other State aid reliefs (including VGTR or grants) on that project. This is because a project cannot usually attract two or more different types of State aid. In fact, if a company claims VGTR in respect of a project, the SME R&D Relief legislation specifically stops any claim for SME R&D Relief. This is covered in s1138 CTA 2009 and still applies even if the company later withdraws a successful claim for VGTR. This means that if a VGDC chooses to claim VGTR, any R&D ‘bubble’ within that project wouldn’t qualify for R&D relief under the SME scheme.