Creative Industry Tax Reliefs and R&D Tax Credits

Our Radius team spend the majority of their time looking at Research & Development (R&D) tax relief claims and claims for relief under the Patent Box rules; but we also look at the Creative Industry Tax Reliefs. Less well known than R&D and Patent Box, are six tax reliefs which apply to certain qualifying companies, allowing them to benefit from reduced tax rates.

Of these six reliefs, the Video Games Tax Relief is most relevant to our clients within the creative industry.

Video Games Tax Relief operates in a similar way to the SME R&D tax relief in that it provides an additional deduction against taxable profits. Qualifying companies are those which take the lead role in the design and production of British video games which are intended for general sale and meet a minimum UK expenditure test.

The additional deduction is equal to the lower of European Ecomonic Area (EEA) qualifying expenditure or 80% of total qualifying expenditure on the game. If the company is loss making, a payable tax credit is given at the rate of 25% of the additional deduction.

To be certified as British by the British Film Institute, there is a points system covering a range of cultural attributes, including European locations, characters, English language, demonstrating British culture, production activity in the UK and key personnel resident in the EEA.

A company cannot claim both Video Games Tax Relief and any R&D tax relief and therefore companies eligible for both schemes should undertake a review as to which is the most beneficial.

The other tax reliefs all operate in broadly similar, but slightly different ways. They have two elements; a profit deduction to give enhanced relief for qualifying expenditure, and a repayable tax credit if tax losses arise. Tax credit will only be given for losses up to the amount of the additional deduction.

The reliefs can be summarised as follows:

	Additional deduction for qualifying expenditure	Tax credit for losses
Film Tax Relief	Up to 80%	25%
Children’s Television Tax Relief	Up to 80%	-
High-end Television Tax Relief	Up to 80%	-
Animation Tax Relief	Up to 80%	-
Video Games Tax Relief	Up to 80%	25%
Theatre Tax Relief	Up to 80%	25% or 20%

With the exception of the Theatre Tax Relief, all the reliefs have a ‘cultural test’ - to qualify, the production must be certified as a ‘British film’, ‘British programme’ or ‘British Video Game’. The cultural tests are all slightly different and, as with Video Games Tax Relief outlined above, include some elements that cover the European Economic Area rather than just the UK.

Our Radius team are dedicated tax professionals who implement a process developed from years of experience working with innovative companies to optimise their tax position. If you operate within the creative industry or have any queries on this, please contact any member of the Radius team, or your usual Shorts contact.