Video Games Tax Relief costs five times as much as forecast

Video Games Tax Relief (VGTR) cost a record £197m last year, more than five times as much as it was anticipated to cost when it was introduced.¹ A total of £830m in subsidy to the video games industry has been paid since the relief was introduced, with numbers increasing every year as the following chart reveals:²

Amount of video games tax relief paid (£ million, receipts basis) 2014-15 to 2021-22

Despite being billed as a relief set up to help independent developers produce culturally British games, it is large firms that benefit, as revealed by HMRC’s commentary on statistics for VGTR in the creative industry:

“In the year ending March 2022, the majority of claims tend to be for smaller amounts, with 49% of all claims being for £50,000 or less; however, these claims are only responsible for 1% of the total amount paid out. Claims over £500,000 account for 88% of the total amount paid out.”⁴

Worse still, is the fact much of the tax relief has been taken by large multi-national companies, for here there is a huge risk they will game the system and ‘offshore’ the subsidised intellectual property, resulting in the profits, and tax on them, being collected elsewhere. This point was made by TaxWatch’s Acting Director when he gave evidence about Video Games Tax Relief in front of the Treasury Select Committee on Monday 19th December 2022.

Rockstar Games illustrates this risk. The Edinburgh-based company developed Grand Theft Auto V which is thought to have generated revenues of over $5bn, only to then sell the intellectual property to their US-based parent company Take-Two Interactive at more or less cost price.⁵ Take-Two Interactive distributed, and continues to distribute, the game globally, and ultimately makes the (taxable) profits.

In order to receive VGTR, a game has to be accredited as “Culturally British” by the BFI. Since the introduction of the relief in 2014 through to 31 March 2022, 1,500 games received this certification.³ Of these, only two were published by Rockstar, with Grand Theft Auto V receiving the accreditation in 2015, and Red Dead Redemption 2 in 2019.

Rockstar’s latest accounts reveal it obtained £79.8m in VGTR in 2021-2022, a sum that is more than twice the value of the original costing of this tax relief to the whole industry and 41% of all of the VGTR paid out last year. The amount obtained by Rockstar has risen each year, taking the total the US-owned company has claimed to a staggering £285m – or 31% of this tax relief over the years.

Together these show it is time for the UK Government to review the effectiveness of this corporate subsidy, and it is not just TaxWatch who is asking pertinent questions for during the Treasury Select Committee session Danny Kruger MP (Conservative) asked the CEO of UK Interactive Entertainment, the trade body for the games industry:

“…wouldn’t it be nice if some of the profits, which are the ultimate purpose of a commercial enterprise, were taxed in the UK? Do you not think that there would be some value in that?”⁶

We agree.