Q: Our video game studio is interested in planning for a long-term contract, but we are unsure if the recent business reliefs introduced by the previous government will continue to apply. What steps should we take?

A: While specific predictions regarding the Chancellor’s upcoming budget report on October 30 remain uncertain, Rachel Reeves has suggested that key growth sectors which play a crucial role in the UK economy will likely receive support.

Although there is no assurance that current business reliefs will remain intact, it is anticipated that such programs will not be abruptly discontinued. Reliefs applicable at the time of your application are expected to be maintained, and any significant alterations proposed in the October budget will likely include a transition period to gradually implement changes.

It’s advisable to begin by exploring the available reliefs and incentives for your industry. As a video game development firm, you should familiarize yourself with the video games tax relief (VGTR) on your corporation tax obligations, as well as its successor, the video games expenditure credit (VGEC). The Chancellor has not indicated any intent to modify these reliefs, which are tailored for UK video game developers and offer considerable financial assistance.

The VGTR allows relief on up to 80 percent of core production costs, resulting in a potential net credit of as much as 20 percent. To qualify for VGTR, games must receive British certification from the British Film Institute, and at least 25 percent of the core costs must occur within the UK or the European Economic Area. For instance, a medium-sized game studio with qualifying core expenses of £500,000 could potentially claim £100,000 in corporation tax relief through VGTR, thus positively impacting cash flow.

Starting from April 1 of the next year, the VGEC will provide comparable benefits, offering a slightly increased net credit rate that can reach a maximum of 20.4 percent.

To apply for the VGEC, meticulous record-keeping of allowable expenditures related to the game’s design, production, and testing is essential, excluding any marketing or promotional costs.

If your development work entails significant innovation, such as creating new gaming technologies or addressing complex technical challenges, you may qualify for the Research and Development (R&D) tax credit scheme. Eligibility requires that your project aims to advance scientific or technological knowledge by resolving uncertainty, and that the solution isn’t easily deducible by skilled professionals.

Under the R&D tax credit framework, small to medium-sized enterprises can recover up to 33.35 percent of qualifying R&D expenditures, while larger firms have a lower but still advantageous recovery rate. For example, a smaller game studio investing £300,000 on a cutting-edge project could be eligible to reclaim up to £100,000 in R&D tax credits. Note that these figures are examples and that rates may vary.

When evaluating a multi-year contract, it is important to note that business reliefs can be beneficial even with potential reductions. However, collaborating with a professional adviser can help you assess your specific situation and determine the best strategies to fully utilize available relief programs, including preparing for potential shifts in rates.

Heather Williams serves as a research and development tax partner at Azets, a leading firm of accountants and business consultants.