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Finance (No. 2) Bill Continued

(4)	The proportion of the estimated total income treated as earned at the

end of a period of account is given by— C / T x I

where—

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

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

I is the estimated total income from the video game.

Supplementary

1216J

Income from the video game

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

receipts by the company in connection with the making 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

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

capital nature are treated as being of a revenue nature.

1216K

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-making activities in connection with the 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.

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

a capital nature only because it is incurred on the creation of an asset

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

1216L

When costs are taken to be incurred

(1)	For the purposes of this Chapter costs are incurred when they are

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

(2)	Accordingly—

(a)	payments in advance of 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

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.

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Finance (No. 2) Bill Continued

(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 of the

obligation unless an appropriate amount of income is or has been

brought into account.

1216M

Pre-trading expenditure

(1)	This section applies if, before the company began to carry on the

separate video game trade, it incurred expenditure on development of

the video game.

(2)	The expenditure may be treated as expenditure of the separate video

game trade and as if incurred immediately after the company began to

carry on that trade.

(3)	If expenditure so treated has previously been taken into account for

other tax purposes, the company must amend any relevant company

tax return accordingly.

(4)	Any amendment or assessment necessary to give effect to subsection

(3) may be made despite any limitation on the time within which an

amendment or assessment may normally be made.

1216N

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 reasonable

basis taking into consideration all relevant circumstances.

Chapter 8

Video Game Tax Relief

Introductory

1216O

Availability and overview of video game tax relief

(1)	This Chapter applies for corporation tax purposes to a company that is

the video game production company in relation to a video game.

(2)	Relief under this Chapter (“video game tax relief”) is available to the

company if the conditions specified in the following sections are met

in relation to the video game—

(a)	section 1216P (intended for commercial release),

(b)	section 1216Q (British video game), and

(c)	section 1216R (UK expenditure).

(3)	Video game tax relief is given by way of—

(a)	additional deductions (see sections 1216S and 1216T), and

(b)	video game tax credits (see sections 1216U to 1216W).

(4)	Section 1216X contains provision about unpaid costs and artificially

inflated claims.

(5)	In this Chapter “the separate video game trade” means the company’s

separate trade in relation to the video game (see section 1216H).

(6)	See Schedule 18 to FA 1998 (in particular, Part 9D) for information

about the procedure for making claims for video game tax relief.

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Finance (No. 2) Bill Continued

Conditions of relief

1216P

Intended commercial release

(1)	The video game must be intended for commercial release.

(2)	For this purpose—

(a)	“commercial release” means distribution to the paying public,

and

(b)	a video game is not regarded as intended for commercial

release unless it is intended that a significant proportion of the

earnings from the video game should be obtained by such

distribution.

(3)	Whether this condition is met is determined for each accounting

period of the company during which video game-making activities are

carried on in relation to the video game, in accordance with the

following rules.

(4)	If at the end of an accounting period the video game is intended for

commercial release, the condition is treated as having been met

throughout that period (subject to subsection (5)(b)).

(5)	If at the end of an accounting period the video game is not intended for

commercial release, the condition—

(a)	is treated as having been not met throughout that period, and

(b)	cannot be met in any subsequent accounting period.

This does not affect any entitlement of the company to relief in an

earlier accounting period for which the condition was met.

1216Q

British video game

(1)	Subject to subsection (2), a video game is a British video game for the

purposes of this Part if it achieves a minimum of 19 points out of a

maximum of 37 from the following table, with a minimum of 9 points

being obtained in sections A and B:

	A	Cultural Content	Number of points
	A1	The video game is based on locations in Europe (including	From 0 to 4 points
		fictionalised versions of locations in Europe) or on peoples
		of Europe.
	A2	The video game is inspired by or based upon: (i) European	From 0 to 4 points
		underlying material (such as a film, a book or artistic work;
		or (ii) a sport (or sports) that originated in Europe or (iii)
		any event (or events) held (or previously held) within
		Europe; or (iv) any other European subject matter.
	A3	The in-video game dialogue and in-video game text is	2 points
		mainly in the English language.
	B	Cultural Contribution
	B1	The video game is an original video game (as opposed to	3 points
		being a sequel to a previous video game).
	B2	The video game is based on or strongly features a narrative	From 0 to 4 points
		(as opposed to being a purely abstract or non-linear video
		game).
	B3	The video game incorporates any clear technical or	From 0 to 4 points
		creative innovations such as innovations in: (i) gameplay;
		(ii) graphics; (iii) user interface; (iv) artificial intelligence,
		audio or physics; or (v) online or multiplayer functionality.
	B4	The video game represents or reflects: (i) diverse European	From 0 to 4 points
		culture; or (ii) European heritage; or (iii) European
		creativity.
	C	Cultural Hubs
	C1	At least 50 per cent. of the production budget in incurred	From 0 to 4 points
		within the UK.
	C2	The in-video game text is translated into at least two other	2 points
		official languages of the EEA.
	D	Cultural Practitioners
	D1	Executive Producer.	1 point
	D2	Lead Programmer.	1 point
	D3	Lead Artist.	1 point
	D4	Scriptwriter.	1 point
	D5	Lead Designer.	1 point
	D3	Lead music and audio composer.	1 point
		Total Achievable Points	37 points

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Finance (No. 2) Bill Continued

(2)	Notwithstanding the above, a video game is not a British Video Game

if it is of a pornographic nature or features extreme violence.

1216R

UK expenditure

(1)	At least 25 per cent. of the core expenditure on the video game

incurred must be UK expenditure.

(2)	The Treasury may by regulations amend the percentage specified in

subsection (1).

Additional deductions

1216S

Additional deduction for qualifying expenditure

(1)	If video game 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.

(3)	In this Chapter “qualifying expenditure” means core expenditure on

the video game that falls to be taken into account under Chapter 2 in

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Finance (No. 2) Bill Continued

calculating the profit or loss of the separate video game trade for tax

purposes.

(4)	The Treasury may by regulations—

(a)	amend subsection (3), and

(b)	provide that expenditure of a specified description is or is not

to be regarded as qualifying expenditure.

1216T

Amount of additional deduction

(1)	For the first period of account during which the separate video game

trade is carried on, the amount of the additional deduction is given

by— E x R

where—

E is—

(a)	so much of the qualifying expenditure as is UK expenditure,

or

(b)	if less, 80 per cent. of the total amount of qualifying

expenditure, and R is the rate of enhancement (see subsection

(3)).

(2)	For any period of account after the first, the amount of the additional

deduction is given by — (E x R) - P

where—

E is—

(a)	so much of the qualifying expenditure incurred to date as is

UK expenditure, or

(b)	if less, 80 per cent. of the total amount of qualifying

expenditure incurred to date,

R is the rate of enhancement (see subsection (3)), and

P is the total amount of the additional deductions given for previous

periods.

(3)	The rate of enhancement is—

(a)	for a limited-budget video game, 100, and

(b)	for any other video game, 80 per cent.

(4)	The Treasury may by regulations amend the percentage specified in

subsection (1) or (2).

Video Game tax credits

1216U

Video game tax credit claimable if company has surrenderable loss

(1)	If video game tax relief is available to the company, it may claim a

video game tax credit for an accounting period in which it has a

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, or

(b)	if less, the available qualifying expenditure for the period.

(2A)	The company’s available loss for an accounting period is given by —

L — RUL

where—

L is the amount of the company’s loss for the period in the separate

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video game trade, and

RUL is the amount of any relevant unused loss of the company.

(2B)	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—

(a)	surrendered under section 1216V, or

(b)	carried forward under section 45 of CTA 2010 and set against

profits of the separate video games trade.

(3)	For the first period of account during which the separate video game

trade is carried on, the available qualifying expenditure is the amount

that is E for that period for the purposes of section 1216T(1).

(4)	For any period of account after the first, the available qualifying

expenditure is given by— E - S

where—

E is the amount that is E for that period for the purposes of section

1216T(2), and

S is the total amount previously surrendered under section 1216V(1).

(5)	If a period of account of the separate video game trade does not

coincide with an accounting period, any necessary apportionments are

to be made by reference to the number of days in the periods

concerned.

1216V

Surrendering of loss and amount of video game tax credit

(1)	The company may surrender the whole or part of its surrenderable loss

in an accounting period.

(2)	If the company surrenders the whole or part of that loss, the amount of

the video game tax credit to which it is entitled for the accounting

period is given by— L x R

where—

L is the amount of the loss surrendered, and

R is the payable credit rate (see subsection (3)).

(3)	The payable credit rate is—

(a)	for a limited-budget video game, 25 per cent., and

(b)	for any other video game, 20 per cent.

(4)	The company’s available loss for the accounting period is reduced by

the amount surrendered.

1216W

Payment in respect of video game tax credit

(1)	If the company—

(a)	is entitled to a video game tax credit for an accounting period,

and

(b)	makes a claim, the Commissioners for Her Majesty’s Revenue

and Customs (“the Commissioners”) must pay to the company

the amount of the credit.

(2)	An amount payable in respect of—

(a)	a video game tax credit, or

(b)	interest on a video game tax credit under section 826 of ICTA,

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Finance (No. 2) Bill Continued

may be applied in discharging any liability of the company to pay

corporation tax. To the extent that it is so applied the Commissioners’

liability under subsection (1) is discharged.

(3)	If the company’s company tax return for the accounting period is

enquired into by the Commissioners, no payment in respect of a video

game tax credit for that period need be made before the

Commissioners’ enquiries are completed (see paragraph 32 of

Schedule 18 to FA 1998). In those circumstances the Commissioners

may make a payment on a provisional basis of such amount as they

consider appropriate.

(4)	No payment need be made in respect of a video game tax credit for an

accounting period before the company has paid to the Commissioners

any amount that it is required to pay for payment periods ending in that

accounting period—

(a)	under PAYE regulations,

(b)	under section 966 of ITA 2007 (visiting performers), or

(c)	in respect of Class 1 contributions under Part 1 of the Social

Security Contributions and Benefits Act 1992 (c. 4) or Part 1

of the Social Security Contributions and Benefits (Northern

Ireland) Act 1992 (c. 7).

(5)	A payment in respect of a video game tax credit is not income of the

company for any tax purpose.

Miscellaneous

1216X

No account to be taken of amount if unpaid

(1)	In determining for the purposes of this Chapter the amount of costs

incurred on a video game at the end of a period of account, ignore any

amount that has not been paid 4 months after the end of that period.

(2)	This is without prejudice to the operation of section 1216L.

1216Y

Artificially inflated claims for additional deduction or video game

            tax credit

(1)	So far as a transaction is attributable to arrangements entered into

wholly or mainly for a disqualifying purpose, it is to be ignored in

determining for any period—

(a)	any additional deduction which a company may make under

this Chapter, and

(b)	any video game tax credit to be given to a company.

(2)	Arrangements are entered into wholly or mainly for a disqualifying

purpose if their main object, or one of their main objects, is to enable

a company to obtain—

(a)	an additional deduction under this Chapter to which it would

not otherwise be entitled or of a greater amount than that to

which it would otherwise be entitled, or

(b)	a video game tax credit to which it would not otherwise be

entitled or of a greater amount than that to which it would

otherwise be entitled.

(3)	“Arrangements” includes any schemes, agreements or understanding,

whether or not legally enforceable.

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Revised 5 November 2010