Finance Bill

Session 2013 - 14
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Finance 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.
20
(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
25
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
30
(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
35
trades.
(6)
Chapter 5 provides—
(a)
for relief under Chapters 3 and 4 to be given on a provisional
basis, and

Finance 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for such relief to be withdrawn if it turns out that conditions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.
15
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
25
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 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
20
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 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
25
(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—

where—
40
C is the total to date of costs incurred (and represented in work
done),

Finance 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
20
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
35
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.