Finance Bill

House of Commons

Session 2013 - 14
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Finance Bill

Finance Bill
Schedule 16 — Tax relief for video games development
Part 1 — Amendments of CTA 2009
284

1217AF
“Company tax return”

In this Part “company tax return” has the same meaning as in
Schedule 18 to FA 1998 (see paragraph 3(1)).
Chapter 2
Taxation of activities of video games development company
5
Separate video game trade
1217B
Activities of video games development company treated as a separate
trade
(1)
This Chapter applies for corporation tax purposes to a company that
is the video games development company in relation to a video
10
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
any activities in relation to any other video game).
(3)
In this Chapter the separate trade is called “the separate video game
15
trade”.
(4)
The company is treated as beginning to carry on the separate video
game trade—
(a)
when the design of the video game begins, or
(b)
if earlier, when any income from the video game is received
20
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
losses of the separate video game trade.
(2)
For the first period of account the following are brought into
25
account—
(a)
as a debit, the costs of the video game incurred (and
represented in work done) to date, and
(b)
as a credit, the proportion of the estimated total income from
the video game treated as earned at the end of that period.
30
(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
the video game incurred (and represented in work done) to
date and the corresponding amount for the previous period,
35
and
(b)
as a credit, the difference between the proportion of the
estimated total income from the video game treated as earned
at the end of that period and the corresponding amount for
the previous period.
40

Finance Bill
Schedule 16 — Tax relief for video games development
Part 1 — Amendments of CTA 2009
285

(4)
The proportion of the estimated total income treated as earned at the
end of a period of account is given by—

where—
C is the total to date of costs incurred (and represented in work
done),
5
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
10
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
15
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
20
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
25
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.
30
(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
35
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
40
is represented in the state of completion.

Finance Bill
Schedule 16 — Tax relief for video games development
Part 1 — Amendments of CTA 2009
286

(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
game, no amount is to be brought into account in respect of the costs
5
of the obligation unless an appropriate amount of income is or has
been brought into account.
1217BE
Estimates

Estimates for the purposes of this Chapter must be made as at the
balance sheet date for each period of account, on a just and
10
reasonable basis taking into consideration all relevant circumstances.
Chapter 3
Video games tax relief
Introductory
1217C
Availability and overview of video games tax relief
15
(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)
Relief under this Chapter (“video games tax relief”) is available to the
company if the conditions specified in the following sections are met
20
in relation to the video game—
(a)
section 1217CA (intended for supply),
(b)
section 1217CB (British video game), and
(c)
section 1217CE (UK expenditure).
(3)
Video games tax relief is given by way of—
25
(a)
additional deductions (see sections 1217CF and 1217CG), and
(b)
video game tax credits (see sections 1217CH to 1217CJ).
(4)
But video games tax relief is not available in respect of any
expenditure if—
(a)
the company is entitled to an R&D expenditure credit under
30
Chapter 6A of Part 3 in respect of the expenditure, or
(b)
the company has obtained relief under Part 13 (additional
relief for expenditure on research and development) in
respect of the expenditure.
(5)
Sections 1217CK to 1217CN contain provision about unpaid costs,
35
artificially inflated claims and confidentiality of information.
(6)
In this Chapter “the separate video game trade” means the
company’s separate trade in relation to the video game (see section
1217B).
(7)
See Schedule 18 to FA 1998 (in particular, Part 9D) for information
40
about the procedure for making claims for video games tax relief.

Finance Bill
Schedule 16 — Tax relief for video games development
Part 1 — Amendments of CTA 2009
287

“Intended for supply”
1217CA
Intended for supply
(1)
The video game must be intended for supply to the general public.
(2)
Whether this condition is met is determined when video game
production activities begin, so that—
5
(a)
where a video game is originally intended for supply, this
condition continues to be met even if that ceases to be the
intention, and
(b)
where a video game is not originally intended for supply, this
condition is not met even if that becomes the intention.
10
British video games
1217CB
British video game
(1)
The video game must be certified by the Secretary of State as a British
video game.
(2)
The Secretary of State, with the approval of the Treasury, may by
15
regulations specify conditions which must be met by a video game
before it may be certified as a British video game.

These conditions are known as the “cultural test”.
(3)
Regulations under subsection (2) may—
(a)
specify different conditions in relation to different
20
descriptions of video game,
(b)
provide that specified descriptions of video game may not be
certified as a British video game, and
(c)
enable the Secretary of State to direct that any provision
made by virtue of paragraph (b) does not apply to a video
25
game that meets specified conditions.

“Specified” means specified in the regulations.
(4)
Regulations under subsection (2) are to be made by statutory
instrument.
(5)
A statutory instrument containing regulations under subsection (2)
30
is subject to annulment in pursuance of a resolution of the House of
Commons.
(6)
Sections 1217CC and 1217CD contain further provision about
certification of video games as British video games, including
provision about applications for, and withdrawal of, certification.
35
1217CC
Applications for certification
(1)
An application for certification of a video game as a British video
game is to be made to the Secretary of State by the video games
development company.
(2)
The application may be for an interim or final certificate.
40
(3)
An interim certificate is a certificate that—
(a)
is granted before the video game is completed, and

Finance Bill
Schedule 16 — Tax relief for video games development
Part 1 — Amendments of CTA 2009
288

(b)
states that the video game, if completed in accordance with
the proposals set out in the application, will be a British video
game.
(4)
A final certificate is a certificate that—
(a)
is granted after the video game is completed, and
5
(b)
states that the video game is a British video game.
(5)
The applicant must provide the Secretary of State with any
documents or information which the Secretary of State requires in
order to determine the application.
(6)
The Secretary of State may require information provided for the
10
purposes of the application to be accompanied by a statutory
declaration, made by the person providing it, as to the truth of the
information.
(7)
The Secretary of State may by regulations make provision
supplementing this section, including—
15
(a)
provision about the form of applications,
(b)
provision about the particulars and evidence necessary for
satisfying the Secretary of State that a video game meets the
cultural test, and
(c)
provision that any statutory declaration which is required by
20
subsection (6) to be made by any person may be made on the
person’s behalf by such person as is specified in the
regulations.
(8)
Regulations under subsection (7) are to be made by statutory
instrument.
25
(9)
A statutory instrument containing regulations under subsection (7)
is subject to annulment in pursuance of a resolution of the House of
Commons.
1217CD
Certification and withdrawal of certification
(1)
If the Secretary of State is satisfied that the requirements are met for
30
interim or final certification of a video game as a British video game,
the Secretary of State must certify the video game accordingly.
(2)
If the Secretary of State is not satisfied that those requirements are
met, the Secretary of State must refuse the application.
(3)
An interim certificate—
35
(a)
may be given subject to conditions, and (unless the Secretary
of State directs otherwise) is of no effect if the conditions are
not met, and
(b)
may be expressed to expire after a specified period, and
(unless the Secretary of State directs otherwise) ceases to have
40
effect at the end of that period.
(4)
An interim certificate ceases to have effect when a final certificate is
issued.
(5)
If it appears to the Secretary of State that a video game certified
under this Part ought not to have been certified, the Secretary of State
45
may revoke its certification.

Finance Bill
Schedule 16 — Tax relief for video games development
Part 1 — Amendments of CTA 2009
289

(6)
Unless the Secretary of State directs otherwise, a certificate that is
revoked is treated as never having had effect.
UK expenditure
1217CE
UK expenditure
(1)
At least 25% of the core expenditure on the video game incurred by
5
the company must be UK expenditure.
(2)
The Treasury may by regulations amend the percentage specified in
subsection (1).
Additional deductions
1217CF
Additional deduction for qualifying expenditure
10
(1)
If video games tax relief is available to the company, it may (on
making a claim) make an additional deduction in respect of
qualifying expenditure on the video game.
(2)
The deduction is made in calculating the profit or loss of the separate
video game trade.
15
(3)
In this Chapter “qualifying expenditure” means core expenditure on
the video game that falls to be taken into account under Chapter 2 in
calculating the profit or loss of the separate video game trade for tax
purposes.
(4)
The Treasury may by regulations—
20
(a)
amend subsection (3), and
(b)
provide that expenditure of a specified description is or is not
to be regarded as qualifying expenditure.
1217CG
Amount of additional deduction
(1)
For the first period of account during which the separate video game
25
trade is carried on, the amount of the additional deduction is—

where E is—
(a)
so much of the qualifying expenditure as is UK expenditure,
or
(b)
if less, 80% of the total amount of qualifying expenditure.
30
(2)
For any period of account after the first, the amount of the additional
deduction is given by—

where—
E is—
(a)
so much of the qualifying expenditure incurred to
35
date as is UK expenditure, or
(b)
if less, 80% of the total amount of qualifying
expenditure incurred to date, and
P is the total amount of the additional deductions given for
previous periods.
40

Finance Bill
Schedule 16 — Tax relief for video games development
Part 1 — Amendments of CTA 2009
290

(3)
The Treasury may by regulations amend this section.
Video game tax credits
1217CH
Video game tax credit claimable if company has surrenderable loss
(1)
If video games tax relief is available to the company, it may claim a
video game tax credit for an accounting period in which it has a
5
surrenderable loss.
(2)
The company’s surrenderable loss in an accounting period is—
(a)
the company’s available loss for the period in the separate
video game trade (see subsection (3)), or
(b)
if less, the available qualifying expenditure for the period (see
10
subsections (5) and (6)).
(3)
The company’s available loss for an accounting period is given by—

where—
L is the amount of the company’s loss for the period in the
separate video game trade, and
15
RUL is the amount of any relevant unused loss of the company
(see subsection (4)).
(4)
The “relevant unused loss” of a company is so much of any available
loss of the company for the previous accounting period as has not
been—
20
(a)
surrendered under section 1217CI(1), or
(b)
carried forward under section 45 of CTA 2010 and set against
profits of the separate video game trade.
(5)
For the first period of account during which the separate video game
trade is carried on, the available qualifying expenditure is the
25
amount that is E for that period for the purposes of section
1217CG(1).
(6)
For any period of account after the first, the available qualifying
expenditure is given by—

where—
30
E is the amount that is E for that period for the purposes of
section 1217CG(2), and
S is the total amount previously surrendered under section
1217CI(1).
(7)
If a period of account of the separate video game trade does not
35
coincide with an accounting period, any necessary apportionments
are to be made by reference to the number of days in the periods
concerned.
1217CI
Surrendering of loss and amount of video game tax credit
(1)
The company may surrender the whole or part of its surrenderable
40
loss in an accounting period.