Why can the UK be attractive to developers?
- Legal regulation
- Tax benefits
- International market
- Industry support
- Contact our legal team to learn more
The British game industry is one of the largest, and its impact on global culture and economy is undoubtedly great.
The development of video game development in the UK began in the 1970s. During this period, small groups of developers began to create simple games for fun. The industry's dramatic growth occurred in the 1980s, when the first successful computer games appeared, such as "Elite", "Manic Miner", "Jet Set Willy", and others. At the same time, the first major video game developers appeared, such as Rare, Codemasters, Team17, and Bullfrog Productions. Companies began to produce games not only for the domestic market, but also for the international one.
Today, the video game development industry in the UK is in the spotlight. London has become one of the largest game centers in the world, where the offices of such companies as Rockstar Games, Ubisoft, Sony Interactive Entertainment Europe and others are located.
The UK can be an attractive jurisdiction for game development for several reasons:
Legal regulation
Although English law does not provide for either the legal classification or regulation of video games, they still fall under copyright protection. At the same time, English law offers several options for protecting video game elements:
- As objects of copyright. In the UK, video games are treated as "literary works", as evidenced by their originality. Video game authors receive the copyright to their works for life, plus an additional 70 years after death. This means that no one is allowed to use parts of a 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 (e.g., name, logo, characters). Trademark registration gives the right to exclusive use of these elements for commercial purposes and allows video game developers to protect their unique brands from unauthorized use by third parties.
- Like patents. In the UK, it is generally not possible to register a patent for a video game itself. However, some elements of a video game can be patented if it is possible to demonstrate a "technical effect" that distinguishes the element from existing counterparts.
- As a design. Design rights can be used to protect certain elements regarding the visual design of the game's user interface or characters. A registered design gives the owner the right to exclusive use of his design element for a certain period of time, protecting it from copying and unauthorized use by competitors.
Tax benefits
The UK government provides various tax breaks and subsidies for companies that develop video games.
Research and Development (R&D) Tax Relief Program. For small and medium-sized enterprises (fewer than 500 employees and a turnover of less than €100 million or a total balance sheet of less than €86 million), this percentage is usually 230%, meaning a company can deduct 130% of its qualified R&D costs on top of its usual deductible amount. For large companies, the percentage is usually 130%.
To obtain R&D Tax Relief, certain conditions must be met, including mandatory registration in the UK, confirmation that the research work carried out within the company, aimed at developing technologies in the game industry and meeting the criteria of HMRC.
Another special tax relief program for video game development companies is the Video Games Tax Relief (VGTR). It allows you to get an income tax refund or reduce the tax rate on expenses related to the creation of video games. To receive a VGTR of up to 20%, the developer must first be registered with HM Revenue and Customs (HMRC) as a video game developer, and certain conditions must be met, Among them:
- The game is defined as "British" by the British Film Institute and passes the cultural test with at least 16 points out of 31.
- The game should be designed to be sold to the general public, not limited to certain groups of people.
- The company should be actively involved in the planning and decision-making of the game's development.
- The company must independently conduct all business interactions and financial transactions related to the development of the video game.
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, which contributes to the development of the local economy.
A development company can only obtain a certificate if the video game is fully completed, but it is possible to obtain an intermediate certificate while the game is 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 lender to help finance projects that qualify for Video Games Tax Relief. That is, the bank or lender lends money to the company knowing that its loan must be repaid from the VGTR's earnings.
The conditions for granting VGTR Loans include the need for qualification for VGTR, as well as an assessment of the financial stability and sustainability of the project.
Also, the bank or lender charges interest and/or commission for providing a loan to the company. But the risk to the bank or lender is relatively small, so the interest or commission should not be too high. In addition, there are legal and accounting fees associated with the loan, so it's important to assess the level of the total fee and make sure that the obligation to pay them is less weighty than the benefit of the loan.
The next tax benefit, which will be introduced from April 1, 2025, is Video Games Expenditure Credits (VGEC). It is intended to replace the VGTR. Video games developed before April 1, 2025 may be subject to the VGTR until April 2027. Video games developed after April 1, 2025 must be subject to the VGEC tax credit.
This tax credit program for video game development companies provides the opportunity to get a refund of a portion of the taxes paid on the costs associated with video game development. The size of the VGEC is 34% of all qualified video game development expenditures. Qualifying expenses are considered to be the lesser of two values:
- 80% of the total amount of basic expenses;
- the amount of the company's main expenses in the UK.
The conditions for the use of VGEC are in many ways similar to those for VGTR, including recognition of the game as "British", sale to the general public, active participation of the company in planning and decision-making, as well as the company's direct responsibility for the development, production and testing of the game, confirmation of the company's independence in the British market, and others.
The differences between the two tax benefits, VGEC and VGTR, apart from the difference in the amount of interest required on qualified expenses or "basic costs", are that the VGTR provides tax credits on profits and the VGEC on costs. In addition, the VGEC does not limit the costs of subcontractors that may qualify as basic expenses. According to the VGTR, there is a cap of £1 million per game, above which the costs of subcontractors cease to qualify as basic expenses.
Business environment. The UK has a developed business environment that is favorable for start-ups and innovative companies. This can make it easier to create and grow your own game development studio.
There are several game associations in the UK that play an important role in the development of the industry. For example, The Association of UK Interactive Entertainment (UKIE). It is the main trading body of the game industry. Its functions include supporting and protecting the interests of companies that develop and release video games. She represents the interests of government organizations and other stakeholders, providing them with protection and support in various matters, as well as taking part in the development of policy and legislation that contributes to the development of the game industry in the UK. In addition, it educates its members in the game development business, provides a platform for networking.
Membership in UKIE can provide an opportunity to improve the developer's business reputation, as well as provide access to media opportunities and public events.
International market
Due to its geographical location and cultural connections, the UK has access to an international market for video game developers. Companies can easily enter new markets and attract new customers.
Industry support
The UK actively supports the video game industry through regular events, festivals and conferences for developers, as well as through grants and training programs.
Thus, the UK offers a fairly favorable environment for video game developers. A variety of tax incentives, grants, and subsidies all make this jurisdiction attractive, including for indie teams.
Contact our legal team to learn more
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