The British gaming industry is among the largest globally, and its impact on world culture and economy is undeniably significant.
The development of the video game development sector in the UK began in the 1970s. During this period, small groups of developers started creating simple games for entertainment. The industry experienced a sharp growth in the 1980s when the first successful computer games like Elite, Manic Miner, Jet Set Willy, and others emerged. Around the same time, major video game developers like Rare, Codemasters, Team17, and Bullfrog Productions appeared. These companies began producing games not only for the domestic market but also internationally.
Today, the video game development sector in the UK is in the spotlight. London has become one of the largest gaming hubs in the world, hosting offices of companies such as Rockstar Games, Ubisoft, Sony Interactive Entertainment Europe, and others.
The UK can be an attractive jurisdiction for game development for several reasons.
1) Legal Regulation. Although English law does not specifically classify or regulate video games, they are nonetheless protected under copyright law. English law offers various options for protecting video game elements.
- As copyright objects. In this case, authors can control the use of their creative works. In the UK, video games are treated as "literary works," affirmed by their originality. Video game authors hold copyright on their works for their entire lifetime plus an additional 70 years posthumously. This means no one can use parts of the video game without the author's permission.
- As trademarks. In this case, video game developers can register a trademark to protect certain elements of the video game (such as names, logos, characters). Trademark registration grants the right to exclusive commercial use of these elements and allows developers to protect their unique brands from unauthorized use by third parties.
- As patents. Generally, it is not possible to patent an entire video game in the UK. However, specific elements of a video game may be patented if they demonstrate a "technical effect" that differentiates them from existing counterparts. This could involve new technology, a unique gameplay mechanic, or another element that provides the game with uniqueness and innovation.
- As design. Design rights can be used to protect certain elements related to the visual design of a game's user interface or characters. A registered design grants the owner exclusive rights to use the design element for a specified period, protecting it from copying and unauthorized use by competitors.
2) Tax Incentives. The UK government offers various tax incentives and subsidies for companies involved in video game development.
The Research and Development (R&D) Tax Relief program covers various business sectors, including video game development. It allows companies to reduce their taxable income by considering research and development costs. For small and medium enterprises (with fewer than 500 employees and a turnover under 100 million euros or a total balance less than 86 million euros), this percentage is usually 230%, meaning the company can deduct 130% of its qualifying R&D costs on top of their usual deductible sum. For larger companies, the percentage is typically 130%.
To qualify for R&D Tax Relief, certain conditions must be met, including being registered in the UK, confirming that the research activities are conducted within the company, are aimed at advancing technologies in the gaming industry, and meet HMRC criteria.
Another special tax relief program for companies engaged in video game development is Video Games Tax Relief (VGTR). It allows for a return of corporation tax or a reduction in the tax rate on expenditures associated with creating video games. To receive VGTR up to 20%, the developer must first be registered with HM Revenue and Customs (HMRC) as a video game developer, along with certain conditions:
- the game must be recognized as "British" by the British Film Institute and pass a cultural test scoring at least 16 out of 31;
- the game must be intended for public sale rather than limited to certain groups;
- the company must actively participate in the planning and decision-making of the game's development;
- the company must independently handle all business interactions and financial operations related to the video game's development.
At least 25% of the company's "core costs" must be spent on goods or services provided from the UK or the European Economic Area, contributing to the local economy.
A developer can obtain a certificate only when the video game is completely ready, though there is an option to get an interim certificate while the game is still in development.
Another attractive opportunity for developers in the UK could be Video Games Tax Relief Loans (VGTR Loans). This is a loan provided by a bank or other creditor to aid in financing projects qualified for Video Games Tax Relief. The bank or lender provides funds to the company, knowing that the loan will be repaid from VGTR revenues. The size of VGTR Loans is up to 100% of the amount refundable through the tax reliefs granted to the developer.
Conditions for VGTR Loans include a need for VGTR qualification and an assessment of the financial stability and viability of the project.
The bank or creditor also charges interest and/or fees for providing the loan to the company. However, the risk for the bank or lender is relatively low, so the interest or fees shouldn't be too high. Additionally, legal and accounting fees are charged with the loan, so it's important to assess the overall fee level and ensure that the obligation to pay them is less significant than the loan's benefits.
The next tax relief, to be introduced from April 1, 2025, is Video Games Expenditure Credits (VGEC). This is intended to replace VGTR. For games developed before April 1, 2025, VGTR can be used until April 2027. For games developed after April 1, 2025, VGEC tax relief must be applied.
This tax relief program for companies engaged in video game development offers the opportunity to recover part of the taxes paid on expenses related to video game development. The VGEC amount is 34% of all qualifying video game development expenses. Qualifying expenses are considered the lesser of the two amounts:
- 80% of the total amount of core expenditure;
- the company's core expenditures in the UK.
The VGEC conditions are largely similar to those of VGTR, including the game's recognition as "British," public sale, active company participation in planning and decision-making, and direct company responsibility for the game's development, production, and testing, along with confirmation of the company's independence in the UK market, among others.
The differences between VGEC and VGTR, aside from the variance in the required percentages on qualifying expenses or "core costs," are in that VGTR provides tax relief on profit, whereas VGEC targets costs. Additionally, VGEC does not impose limits on subcontractor expenses that may qualify as core costs. Under VGTR, there is a limit of £1 million per game, above which subcontractor expenses stop qualifying as core costs.
3) Business Environment. The UK boasts a developed business environment conducive to startups and innovative companies. This can facilitate the creation and growth of one's own game development studio.
The UK hosts several gaming associations that play an important role in industry development. For example, The Association of UK Interactive Entertainment (UKIE). It is the main trade body for the gaming industry. Its functions include supporting and protecting the interests of companies involved in the development and release of video games. It represents the industry's interests before government entities and other stakeholders, ensuring their rights and providing support in various matters. It also participates in shaping policy and legislation that fosters the gaming industry's growth in the UK. Besides this, it educates its members on game dev business operations and provides a networking platform.
Membership in UKIE can enhance a developer's business reputation and provide access to media opportunities and public events.
4) International Market. Due to its geographical location and cultural ties, the UK has access to the international market for video game developers. Companies can easily enter new markets and attract new clients.
5) Industry Support. The UK actively supports the video game industry, hosting regular events, festivals, and conferences for developers, as well as providing grants and training programs.
In conclusion, the UK offers a highly favorable environment for video game developers. With various tax incentives, grants, and subsidies, it becomes an attractive jurisdiction, especially for indie teams.