By Adam Smith on March 29th, 2014 at 1:00 pm.
On Thursday, a tax relief scheme for British game development finally passed into law. The scheme had been passed back and forth between various bodies, and finally landed on the desk of the European Commission in April of 2013. Behind the scenes, cog were still turning and the new tax rules will come into effect from April 1st. That’s good news for the British games industry, right? We’ve covered the cultural question before, as well as looking at the benefits (or lack of) for smaller developers. Now that almost all of the paperwork is in place, I contacted UKIE CEO Jo Twist to find out more about the letter of the law.
RPS: The big question first – I’m already seeing jokes, confusion and despair about the ‘cultural test’, which sets out the criteria by which games are assessed. Although the final guidelines for that test haven’t been published, there are already criteria including ‘whether the game is based in Britain’, ‘whether the game is based on a British story’ and so forth. But it also measures ‘the amount of work done in the UK’. Does that, and the citizenship of the development team, carry more weight than the game’s content? For example, could a game based in an unpeopled abstract surrealist realm qualify if the entire team were based in the UK?
Twist: The short answer to this is no, you will not need to fill games with clichéd views of Britain. The cultural test, which games must pass to qualify has been designed to be flexible enough to recognise a broader sense of British and, importantly, European culture. We pushed hard to explain to UK government that games were unique and argued that the cultural test should recognise that some games are set in sometimes abstract locations with characters that cannot be determined as being human, but yet are definitely British or European in concept and the way they act. We used Super Hexagon as an example. When this game was run through the draft cultural test, the BFI (who administer the test) said it would pass.
RPS: Would you recommend that smaller developers contact UKIE for advice if they are unsure as to whether they qualify or not? What kind of assistance can you provide?
Twist: We’re hosting sessions around the country for developers of all sizes to hear from the BFI, who will be administering the cultural test, and other experts on exactly how they can access the new reliefs. You can sign up here. We’ll also be rolling out more of these so keep an eye out for one near you. And in the meantime, we’re happy to help with any questions so just email firstname.lastname@example.org. We are thinking about what kind of advice would be useful for companies, and anyone is more than welcome to talk to us about what the cultural test questions mean. But the BFI will be hiring games people to handle games, and the way they work with other screen industries is very open and conversational.
RPS: The relief was initially expected to come into being a year ago and, as I understand it, the delay was related to EC approval. How difficult has the process been and have there been any compromises?
Twist: Yes it’s been a long process involving a big collective effort from the UK games industry but the efforts have finally paid off. The only been two real changes to the legislation to address some concerns expressed by the European Commission. The first was to extend the relief to expenditure on goods and services provided from within the European Economic Area (EEA) as opposed to just the UK. The second was to include a cap of £1m per game on sub-contracted expenditure. But otherwise the scheme is as it was recommended by us to UK government last year.
RPS: If developers are working independently, and often without formal office space or employee structures, does this make the possibility of forming a company more feasible?
Twist: As long as you are a registered company and are making a game that is intended for the public, whether it be free or not, you can apply. The barriers to forming a company are relatively low and you should seek advice from Companies House for more information on this. We worked with government to make sure that the new reliefs would work just as well for smaller developers, including single teams. We pointed at developers such as Dan Marshall as a great example. We also pushed for the UK scheme to be more inclusive than the French one which has a minimum budget threshold of 150,000 euros before you are able to apply for the credit. This just did not make sense to us looking at the modern games industry in the UK in all its mixed economic diversity so there is no minimum budget threshold for the UK scheme.
RPS: Despite my name, I’m no economist. In fact, I’m terrible when it comes to money matters so this may be a silly question. At what point after release does the studio calculate the profit/loss that the relief applies to? Will games with a long-tail of sales see less benefit than those that sell quickly?
Twist: Games companies can claim the relief at any stage of the production schedule. The scheme also allows for DLC and ongoing content production to be included, which we also pushed hard for.
RPS: So DLC and in-app (or in-game) purchases can affect profit/loss calculations? Can they be counted as part of the same project?
Twist: Yes. We made it very clear to government that these days many games are never “complete” as such and pushed for the ability for games businesses to claim for ongoing development (ie iterations of games and DLC). This is unique to any tax credit scheme, we believe.
RPS: Moving away from indie developers for a moment – do you see a long-term effect whereby larger developers may relocate to the UK? How competitive does this make the UK on a European and global scale?
Twist: The Chancellor has himself said that “this relief is one of the most generous in the world”. The UK has a strong history of making games and already offers multinational businesses lots of reasons to make games here such as a well-established skills base and a tradition of strong creative ideas. The new relief will add to this and will hopefully be the measure to tempt studios and other businesses to open up in the UK. And our scheme also has other advantages over tax reliefs in other countries such as recognising the iterative nature of modern games design, allowing businesses to claim for the costs of extra content and DLC and not having any minimum budget threshold.
We also have a unique culture full of history, quirks and loveliness: this is what makes the UK great, and we are an incredibly diverse country for such a small island. Hopefully we will see more and more of ourselves as a nation reflected back into our games, and more people will start to recognise their culture, their stories, their experiences through the games they are playing, because more of them will be made in the UK, by creators who have chosen the UK as their home.
RPS: There has been a significant migration from AAA studios into independent work over the last couple of years. With that in mind, does attracting large studios also help the indie scene?
Twist: The new scheme has been designed to help businesses of all sizes from smaller indies to big publisher owned studios. Having a strong overall ecosystem with big AAA studios co-existing with smaller indies – as well as the attendant support and service businesses around them – creates a rich ecosystem, more jobs, more opportunity and ultimately more ideas and great games being made in the UK. Having a strong mixture of AAA and indies can only be a positive thing for the UK games industry and will itself breed more success.
RPS: How quickly will people start to benefit from these changes and what wider positive effects do you see in the short-term?
Twist: Games business can start to claim for costs incurred from 1 April 2014. You will also start to submit your cultural tests to the BFI from this date too.
RPS: The latest major studio to announce closures in the UK was Sony, just a couple of days ago. Do you think that when the effects of the tax relief are felt, similar events will occur less or are they mostly the result of a cyclical and volatile industry?
Twist: There will always be an ebb and flow of people working on particular projects within the industry but the tax relief should provide businesses with more financial security and the hope is that there will be more studios being created, making great British games right here in the UK.
RPS: Thanks for your time!
We’ll continue to follow this story as it develops, and will be seeking alternative voices and opinions. When the news broke, I was struck by how much disagreement existed about the potential benefits of the relief for smaller developers and heading to the source seemed like the best way to cut through some of the misunderstandings. Super Hexagon seems like a strong counterargument to those who feared they’d have to set their games in an English country village or base them on British folklore to benefit from the budgetary changes, like the tweed-clad gents at Big Robot or Mike ‘It’s a Robin Hood game not a Metal Gear game, honest it is’ Bithell *.
Of course, there are questions to be asked about the validity of recognising large corporations as culturally or artistically worthy of tax breaks as well. Does the money that a major AAA studio with global presence saves on taxes end up necessarily boosting the UK economy if they relocate departments here? Questions, questions, questions. I’m sure many of you have more but hopefully this interview helps to answer some of them.