Have you ever enjoyed exploring ancient ruins as Lara Croft?
Been a menace to the general public on Grand Theft Auto? Maybe you’ve had a blast waging war on Call of Duty: Infinite Warfare? If so, you’ve got UK video game developers to thank for making your weekends that little bit more enjoyable.
There was once a time when Japan dominated the world of video games, but things have changed over the past few years. Between 2011 and 2012 the UK game industry doubled its value to become worth £1.72 billion, and its only kept growing. By last year it had reached a valuation of £4.33 billion. In a short period of time, Britain’s game had well and truly levelled-up. So what revived the British video game scene? There are two heroes in this story: Video Game Tax Relief (VGTR) and the accountants.
Nick Watterson, audits and account manager at Alliotts, is a finance professional tasked with guiding game developers through the creation process. One of his responsibilities is helping developers understand and apply for VGTR.
“VGTR is a tax relief for games development that came into effect a couple years ago,” Watterson explains. “It can be claimed by any company responsible for the design, production and testing of the game to give them back up to 20 percent of their production costs.”
Established by the UK Government in 2014, VGTR is a handy power-up for game developers. Designing and creating a modern day video game, whether for mobile, PC or console, isn’t cheap. Even the cost of developing mobile games such as the massively popular Clash of Clans is upwards of £250,000, and Angry Birds (which has recently branched out into the film industry, too) cost around £91,000 to create. VGTR enables developers greater financial freedom when they set out create games, but it does come with restrictions.
The game cannot be used for advertising or gambling, only costs incurred in the EU can be claimed and the game must pass the British Film Institute’s cultural test to make sure the game is truly British (meaning it was made in the UK). That’s where accountants like Watterson come in, armed with advice and experience.
“Realising the challenges that developers face when starting out, we created “Omnia”, which is an affordable, fixed price accounting service designed specifically for smaller games businesses,” he says. “It takes the hassle out of the compliance side of tax and accountancy, so developers can get on with what they enjoy – developing the game – while we take care of the accountancy and tax.”
Like most SMEs, game developers don’t have the time to become experts in accountancy, and they don’t always have the money to spend on help with their accounts. Tax relief like VGTR and resources like Omnia are gems for startup developers. Plus Accounting’s Gamer’s Guides which can be found on their website are also helpful, summarising on one side of A4 key accounting information on what small companies need to get heading down the right path. Luke Thomas, director at Plus Accounting, has had ample experience with the tight budgets of game developers, and knows the importance of the help accountants can provide:
“We’ve found that the game development industry isn’t as well recognised as, say, the film sector, and has less funds available, which makes businesses and the market more volatile,” he explains. “We’re seeing a lot more startups looking to take advantage of the tax relief and the Gamer’s Guides have been really helpful. We also offer reduced rates for startups because cash flow is an important thing when they’re starting up, and we have an interest in ensuring that they do well.”
The introduction of VGTR has been great for the British video game development industry. But both Watterson and Thomas believe the current tax relief is insufficient. Given a little more attention and support, they both believe the UK’s game development industry could blossom further and create even more value for the economy.
“The game development industry is still very volatile at the moment,” Thomas explains. “But I see the situation improving if it can be properly supported by the government. Developers just need the right support because there is so much money in it that it’s unbelievable.”
Thanks to VGTR, the UK’s video game industry has blown up and is still expanding. With so much money to be made from it, there has never been a better time for accountants to step in and provide expertise to SME video game development companies.
Sophie Jardine is an editorial assistant at Flibl. She writes, researches and reports stories about finance and technology.