What A Relief: Talking To UKIE About UK Tax Breaks

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.

a picture of Britain

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 andy@ukie.org.uk. 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.



  1. Lanfranc says:

    Well, that’s good news. But it’s interesting, because I distinctly recall RPS “reporting” last year that "the European Commission decided it wanted to shoot the plans down." I guess that was just flat out wrong, wasn't it?

    I hope we've all learned something about journalism and the EU here (and by "we" I mean RPS.) :-|

    • Henchimus says:

      Well it clearly wasn’t flat-out wrong… as you can see in the article, where it details how the Commission delayed them hugely and forced them to change the plans…

      • Lanfranc says:

        Yes, it was. The Commission had some concerns about the compatibility of the tax relief with the UK’s treaty obligations, so it started an investigation, which then led to some changes and now an approval. Perfectly normal procedure, and nowhere near the same thing as “wanting to shoot it down” – as several people (including myself) also commented on that article.

        I realise RPS is just doing the same thing as practically the entire rest of the British media here, but I don’t think it’s acceptable to make such a superficial and now demonstrably incorrect analysis without some actual understanding of the issues involved.

        • WhatAShamefulDisplay says:

          With respect, the fact that the tax break was ultimately passed in no way renders the lack of intention to shoot such a tax break down by the commission “demonstrable”.

          Moreover, the wider point, which you seemed to have missed in your post at the least, is that the commission ought not to have had the effrontery to check the “compatibility” of any tax break with “treaty obigations”. This kind of attitude is a totally intolerable breach of the rights of a sovereign state, and unless I have fundamentally misunderstood your post I am appalled that anyone could adopt such an unperturbed stance at the thought of a barely democratic (in which assessment I consider myself generous) supra-national body assuming such tentacular responsibility over such a basic matter as to whom a member state is entitled to grant tax relief.

          • Jdopus says:

            You’re talking nonsense, I don’t want to get into the democratic aspect of it, though I do take issue with you declaring it undemocratic – it sounds like you’ve been reading too many tabloids.

            It doesn’t breach our sovereignty in any way for a body we signed up to voluntarily as part of a treaty to check whether we’re acting in accordance with that treaty, this is perfectly normal activity in international politics and every country in the EU has tax breaks such as this reviewed by the commission to ensure that they aren’t engaging in protectionism.

          • WhatAShamefulDisplay says:

            It is an unfortunate trait of so many on the internet to impugn the person with whom they are arguing as opposed to the argument itself. “You have been reading too many tabloids” adds nothing to the discussion, and only serves to sour me further to your point of view. The view that the European Union has surpassed its remit is shared by a broad spectrum of individuals of both high and low education, and I do not appreciate your attempt to position your point of view as that of the erudite intelligentsia.

            In any case, if you won’t talk about the democratic side I won’t, since it seems hardly sporting, but the normality of EU dogma within EU affairs is not the issue under debate. I have no doubt that the analyses of whether Britain’s tax laws are compatible with EU procedure are perfectly routine in themselves, I did not imply any special victimisation of Britain relative to her European competitors, if that was what you thought I meant. Where I, and many others, take objection is in the implication that the European Union has the right to meddle in where the elected of government of a sovereign state chooses to focus its tax breaks, and thus presumably its domestic and fiscal policy *in general*. If a country surrenders its right to use fiscal tools to a supra national body, you must see that it has surrendered every aspect of its being, its independence. Without financial independence, a country is no more than a vassal, as illustrated by countries across the world (including many unaffiliated with the EU) who are pegged helplessly to other currencies, and by extension the whims of foreign central banks.

            If the EU wishes to rubber-stamp tax laws, this implies that it does not want European states gaining “unfair” (whatever that means) advantages over each other, correct? But this is patently ludicrous. The economies of Britain, France, Germany, etc exist in competition. The shackled together legal framework in Brussels seems to live in denial of this fact.

          • Jdopus says:

            You’re right, it was a snide remark and I withdraw the comment, I was just annoyed as it seems on every article that ever even broadly touches on the EU there’s always someone who wades in to again declare how it’s an affront to democracy, and I’m tired of the same opinion being reiterated no matter how tenuous the connection.

            Regarding the EU on this particular issue, this is not a surrender of fiscal policy, any more so than any other trade deal we have with any other country in the world is. Arguing that this is a surrender of our rights as a sovereign state is to imply that any time we ever make an international agreement we’re ceding independence – by the same logic we’ve surrendered our independence by signing up to the international criminal court, to the Human Rights act, to the UN treaty, to the international treaties on climate change…

            Your position leads to the logical conclusion that we can never cooperate with other countries, because it will – by definition – involve a trade off between our interests and theirs. Any time we make a deal with another power there is a legal obligation on us to abide by that treaty, and I fail to see how this is any different in and of itself (again, without going into an argument about EU democracy).

    • Nevard says:

      Yeah I think the fact that you had to write “last year” in your post kind of scuppers any point you could have been trying to make here.

  2. Henchimus says:

    So wait, under these new plans the criteria still mandate that the game has to have some relevance to specifically British culture but the relief must be extended to developers working anywhere in the EEA? Or can the cultural criteria be met by the game having some European cultural relevance, without necessarily having any British cultural relevance and without the developer having anything to do with the UK?

    ie if I’m in Germany and I make a game glorifying the life and wars of Kaiser Wilhelm, or playing a German in the trenches giving Tommy a damned good thrashing, does the UK government have to give me tax relief *on the basis* that my game depicts the glorious Kaiser who is an icon of European culture?

    • marach says:

      you missed the british citizen etc part of the test didn’t you?

      • Great Cthulhu says:

        That doesn’t actually seem to be required.

        Consider though, a UK tax break doesn’t do you any good if you don’t actually pay taxes in the UK.

    • Tams80 says:

      ” without necessarily having any British cultural relevance and without the developer having anything to do with the UK?”

      Well, no. To qualify a game must include British cultural references and/or the developer must have British input If you look at the criteria, you can work out that if you choose just one side, then you have to go all out on that side.

      i.e. A game can qualify if it has lots of British cultural references/influences, but isn’t really developed in the UK. A game that does’t have many, if any British cultural references/influences, but is largely or wholey developed in the UK may well qualify. Then games can be a mixture of both and qualify.

      The quoted example includes neither, so wouldn’t qualify.

      • Wulfram says:

        4 Points because it’s set in the EEA
        4 points because it stars EEA characters
        4 points because it relates to an EEA state
        4 points because it’s in English

        Basically, if you set it in Europe you’re home free.

  3. Ultra Superior says:

    Subsidies, tax reliefs, rent seeking, never good.

    • Crimsoneer says:

      Yeah, this. The government shouldn’t be picking and bribing different sectors to get preferential sectors pay less tax at the expense of everybody else, and the fact that the EU is letting them get away with it due to this hilariously transparent “cultural” tests – it’s not about market advantages, it’s about promoting British culture! – is a little sad.

    • Bart Stewart says:

      I look forward to reading what the alternative voices and opinions have to say.

      Meanwhile, I wish Jo Twist had been asked directly what UKIE plans to say when a new government suddenly but entirely predictably yanks the tax breaks, leaving studios that became dependent on them with more developers than they can afford to keep on.

  4. cF- says:

    The points system that this is based on is actually pretty lenient. You really don’t need to make anything in the game culturally British. The legislation will grant points for it being set in ‘the UK or other EEA states (so the eu, basically?). Even if you set a game a space though, having a dev team and the work done in the UK will probably net you enough points to get the tax break. Good news all round I think.

    link to conservatives.com

  5. Michael Fogg says:

    I expected Adam Smith to be like ‘lower taxes for all, NO tax breaks for anyone”.

  6. Josh W says:

    Good news for developers, although I’d rather there was support to get started up rather than tax breaks, as I think I said before under a previous post, lowering the risk profile of developing seems more important than allowing a developer to have extra gains from it. Since corporation tax only kicks in once they’ve made a profit anyway, this is helpful to support the next game they make, rather than the current particularly british one, which is a little paradoxical.

    Edit: Wait, actually, the tax credit can be claimed on a loss as well, up to 25% of it, and works by tweaking the threshold of what starts to count as a loss, so suppose you spend £40,000 quid working on a game, say on two and a bit tight living costs for three years, and then through kickstarters and preorders etc. you make £25,000. Normally that’d be a terrible idea, but if you can swing maybe 70% of that cost as falling into core game development, ie. your wages or engine costs coding, creating assets for, playing, testing the game etc. then if my maths turns out right, things change substantially:

    If profit or loss is calculated over the whole 3 years you are working on it, then you loose about £6,000ish, which is a failure, and almost as deadly as the £15,000 you’d be loosing normally, because you’ll probably have wrecked your savings by this point.

    But if the profit or loss is worked out on a tax year basis, then the more you fund the game from savings, the better off you will be, because each year you will be operating at a loss equal to the expenditure on the game, which, when you run it through the rough assumptions given above, means a yearly tax credit covering over 35% of the budget. In this situation it might actually be better not to pre-order, and release after the end of a tax year, so as to gain the maximum credit.

    That would suddenly turn the game from something that was not profitable into something that was, having got two thirds of the cost of the game from the sales after release, and over a third from the tax credits. Very odd, and although most indies are probably not going to commit to a project for 3 years with 40,000 worth of savings, refusing to let anyone pay them for it until it’s done, seen as this tax credit can be set up individual on a project by project basis, this might actually get used by larger game developers to help fund experimental projects, as they can recoup a significant quantity of the costs for it. And if you used lots of agile methods and rapid prototyping, you could squeeze out those sections defined as “initial-design work” or “debugging a finished game” to make almost all of the expenditure count as core game expenditure.

    On the other hand, if you were trying to work out your development cycle to be tax efficient (!), you might not want that huge lump of income at the end! The basic result seems interesting anyway, that years in the early middle bit where you are just plugging away at the game without getting many pre-orders in would actually be particularly well supported.

    Anyway, putting aside the back of envelope business maths, I love that super hexagon can be described as an exemplification of british culture. Sounds weird, but of course by genealogy it is true, it did come from britain, so it is british culture, in exactly the same way that most british people are british. If you were going to categorise it, you’d probably put it with abstract rhythm games and precision platformers long before you put it particularly with black and white or xcom, but it nevertheless happened to be born in this country!

    • ChaseGunman says:

      Isn’t Terry Cavanagh Irish though?

      • Josh W says:

        Yeah I noticed that, I decided rather randomly that it didn’t count. I was like “he’s based in london, irish is almost british, yeah, I can smoosh that together, especially given those other guys used his games made in london as examples”. I was too enthused by the idea of games just being about “it turned up here” rather than trying to track some inherent essence. Can I claim dual citizenship for the game?

  7. bills6693 says:

    “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?”

    In short, I believe the answer to be yes.

    The big company gets a tax break (boo) but if that results in them relocating departments here, then the additional tax revenue raised should offset it. Income tax, national insurance, then all those people spending their money paying VAT, and VAT on the equipment and goods the company buys.

    Plus the additional effects of higher employment rates. And even, with these savings the company makes, expanded studios which means more staff hired which is more money going into the economy.

    Overall, the tax break for the company should be more than offset by the additional revenue raised through income tax and VAT among other things, as well as boosting employment. And because of the way it is qualified for the break, companies are strongly encouraged to relocate operations to the UK which will ensure that these additional employment & tax benefits occur.

  8. Wulfram says:

    Test does seem a bit biased against Sci-Fi and fantasy.

    Unless you can stick a bit in your backstory about Planet Arglezeb II’s admission to the Space European Union