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Finance (No. 2) Bill


Finance (No. 2) Bill
Schedule 16 — Tax relief for video games development
Part 1 — Amendments of CTA 2009

279

 

Schedule 16

Section 35

 

Tax relief for video games development

Part 1

Amendments of CTA 2009

1          

After Part 15A of CTA 2009 (inserted by Schedule 15 above) insert—

5

“Part 15B

Video games development

Chapter 1

Introduction

Introductory

10

1217A   

Overview of Part

(1)   

This Part is about video games development.

(2)   

Sections 1217AA to 1217AF contain definitions and other provisions

about interpretation that apply for the purposes of this Part.

   

See, in particular—

15

(a)   

section 1217AA, which contains provision about the meaning

of “video game”, and

(b)   

section 1217AB, which explains how a company comes to be

treated as the video games development company in relation

to a video game.

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(3)   

Chapter 2 is about the taxation of the activities of a video games

development company and includes—

(a)   

provision for the company’s activities in relation to its video

game to be treated as a separate trade, and

(b)   

provision about the calculation of the profits and losses of

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that trade.

(4)   

Chapter 3 is about relief (called “video games tax relief”) which can

be given to a video games development company—

(a)   

by way of additional deductions to be made in calculating the

profits or losses of the company’s separate trade, or

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(b)   

by way of a payment (a “video game tax credit”) to be made

on the company’s surrender of losses from that trade.

(5)   

Chapter 4 is about the relief which can be given for losses made by a

video games development company in its separate trade, including

provision for certain such losses to be transferred to other separate

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trades.

(6)   

Chapter 5 provides—

(a)   

for relief under Chapters 3 and 4 to be given on a provisional

basis, and

 
 

Finance (No. 2) Bill
Schedule 16 — Tax relief for video games development
Part 1 — Amendments of CTA 2009

280

 

(b)   

for such relief to be withdrawn if it turns out that conditions

that must be met for such relief to be given are not actually

met.

Interpretation

1217AA  

“Video game” etc

5

(1)   

This section applies for the purposes of this Part.

(2)   

“Video game” does not include—

(a)   

anything produced for advertising or promotional purposes,

or

(b)   

anything produced for the purposes of gambling (within the

10

meaning of the Gambling Act 2005).

(3)   

References to a video game include the game’s soundtrack.

(4)   

A video game is completed when it is first in a form in which it can

reasonably be regarded as ready for copies of it to be made and made

available to the general public.

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1217AB  

Video games development company

(1)   

For the purposes of this Part “video games development company”

is to be read in accordance with this section.

(2)   

There cannot be more than one video games development company

in relation to a video game.

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(3)   

A company is the video games development company in relation to

a video game if the company (otherwise than in partnership)—

(a)   

is responsible for designing, producing and testing the video

game,

(b)   

is actively engaged in planning and decision-making during

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the design, production and testing of the video game, and

(c)   

directly negotiates, contracts and pays for rights, goods and

services in relation to the video game.

(4)   

If there is more than one company meeting the description in

subsection (3), the company that is most directly engaged in the

30

activities referred to in that subsection is the video games

development company in relation to the video game.

(5)   

If there is no company meeting the description in subsection (3),

there is no video games development company in relation to the

video game.

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(6)   

A company may elect to be regarded as a company which does not

meet the description in subsection (3).

(7)   

The election—

(a)   

must be made by the company by being included in its

company tax return for an accounting period (and may be

40

included in the return originally made or by amendment),

and

(b)   

may be withdrawn by the company only by amending its

company tax return for that accounting period.

 
 

Finance (No. 2) Bill
Schedule 16 — Tax relief for video games development
Part 1 — Amendments of CTA 2009

281

 

(8)   

The election has effect in relation to video games which begin to be

produced in that or any subsequent accounting period.

1217AC  

“Video game development activities” etc

(1)   

In this Part “video game development activities”, in relation to a

video game, means the activities involved in designing, producing

5

and testing the video game.

(2)   

The Treasury may by regulations—

(a)   

amend subsection (1),

(b)   

provide that specified activities are or are not to be regarded

as video game development activities or as video game

10

development activities of a particular description, and

(c)   

provide that, in relation to a specified description of video

game, references to video game development activities of a

particular description are to be read as references to such

activities as may be specified.

15

   

“Specified” means specified in the regulations.

1217AD  

“Core expenditure”

(1)   

In this Part “core expenditure”, in relation to a video game, means

expenditure on designing, producing and testing the video game.

(2)   

But the following descriptions of expenditure are not to be regarded

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as core expenditure for the purposes of this Part—

(a)   

any expenditure incurred in designing the initial concept for

a video game;

(b)   

any expenditure incurred in debugging a completed video

game or carrying out any maintenance in connection with

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such a video game.

1217AE  

“UK expenditure” etc

(1)   

In this Part “UK expenditure”, in relation to a video game, means

expenditure on goods or services that are used or consumed in the

United Kingdom.

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(2)   

Any apportionment of expenditure as between UK expenditure and

non-UK expenditure for the purposes of this Part is to be made on a

just and reasonable basis.

(3)   

The Treasury may by regulations amend subsection (1).

1217AF  

“Company tax return”

35

   

In this Part “company tax return” has the same meaning as in

Schedule 18 to FA 1998 (see paragraph 3(1)).

 
 

Finance (No. 2) Bill
Schedule 16 — Tax relief for video games development
Part 1 — Amendments of CTA 2009

282

 

Chapter 2

Taxation of activities of video games development company

Separate video game trade

1217B   

Activities of video games development company treated as a separate

trade

5

(1)   

This Chapter applies for corporation tax purposes to a company that

is the video games development company in relation to a video

game.

(2)   

The company’s activities in relation to the video game are treated as

a trade separate from any other activities of the company (including

10

any activities in relation to any other video game).

(3)   

In this Chapter the separate trade is called “the separate video game

trade”.

(4)   

The company is treated as beginning to carry on the separate video

game trade—

15

(a)   

when the design of the video game begins, or

(b)   

if earlier, when any income from the video game is received

by the company.

1217BA  

Calculation of profits or losses of separate video game trade

(1)   

This section applies for the purpose of calculating the profits or

20

losses of the separate video game trade.

(2)   

For the first period of account the following are brought into

account—

(a)   

as a debit, the costs of the video game incurred (and

represented in work done) to date, and

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(b)   

as a credit, the proportion of the estimated total income from

the video game treated as earned at the end of that period.

(3)   

For subsequent periods of account the following are brought into

account—

(a)   

as a debit, the difference between the amount of the costs of

30

the video game incurred (and represented in work done) to

date and the corresponding amount for the previous period,

and

(b)   

as a credit, the difference between the proportion of the

estimated total income from the video game treated as earned

35

at the end of that period and the corresponding amount for

the previous period.

(4)   

The proportion of the estimated total income treated as earned at the

end of a period of account is given by—equation: cross[over[char[C],char[T]],char[I]]

   

where—

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C is the total to date of costs incurred (and represented in work

done),

 
 

Finance (No. 2) Bill
Schedule 16 — Tax relief for video games development
Part 1 — Amendments of CTA 2009

283

 

T is the estimated total cost of the video game, and

I is the estimated total income from the video game.

Supplementary

1217BB  

Income from the video game

(1)   

References in this Chapter to income from the video game are to any

5

receipts by the company in connection with the production or

exploitation of the video game.

(2)   

This includes—

(a)   

receipts from the sale of the video game or rights in it,

(b)   

royalties or other payments for use of the video game or

10

aspects of it (for example, characters or music),

(c)   

payments for rights to produce games or other merchandise,

and

(d)   

receipts by the company by way of a profit share agreement.

(3)   

Receipts that (apart from this subsection) would be regarded as of a

15

capital nature are treated as being of a revenue nature.

1217BC  

Costs of the video game

(1)   

References in this Chapter to the costs of the video game are to

expenditure incurred by the company on—

(a)   

video game development activities in connection with the

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video game, or

(b)   

activities with a view to exploiting the video game.

(2)   

This is subject to any provision of the Corporation Tax Acts

prohibiting the making of a deduction, or restricting the extent to

which a deduction is allowed, in calculating the profits of a trade.

25

(3)   

Expenditure that (apart from this subsection) would be regarded as

of a capital nature by reason only of being incurred on the creation of

an asset (the video game) is treated as being of a revenue nature.

1217BD  

When costs are taken to be incurred

(1)   

For the purposes of this Chapter costs are incurred when they are

30

represented in the state of completion of the work in progress.

(2)   

Accordingly—

(a)   

payments in advance for work to be done are ignored until

the work has been carried out, and

(b)   

deferred payments are recognised to the extent that the work

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is represented in the state of completion.

(3)   

The costs incurred on the video game are taken to include an amount

that has not been paid only if it is the subject of an unconditional

obligation to pay.

(4)   

If an obligation is linked to income being earned from the video

40

game, no amount is to be brought into account in respect of the costs

of the obligation unless an appropriate amount of income is or has

been brought into account.

 
 

 
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