Video Games Expenditure Credit (VGEC) is a taxable credit worth 34% of qualifying expenditure on designing, producing and testing a video game that has been certified as British. Qualifying expenditure is the lower of the game’s UK core expenditure and 80% of its total core expenditure, and the credit is claimed by the single company that actually develops the game, on expenditure incurred from 1 January 2024.

VGEC sits in Part 15B of the Corporation Tax Act 2009 alongside the Audio Visual Expenditure Credit for film and television. HMRC’s Creative Industries Expenditure Credit Manual (CREC) is the main guidance.

Which company can claim the credit?

Only the video game development company (VGDC) for the game can claim. Under section 1179FI CTA 2009 the company must be responsible for designing, producing and testing the game, be actively engaged in planning and decision making during those phases, and directly negotiate, contract and pay for rights, goods and services relating to the game.

Subcontracting parts of the work is normal and does not stop a company qualifying, but HMRC says the company must keep overall responsibility and active involvement. A company that commissions the whole game and only holds the copyright, or that is simply a vehicle for contracts, is not the development company. A contract that labels the claimant as the development company is not enough on its own; HMRC expects extrinsic evidence of involvement, such as correspondence and documents showing the company made the decisions.

There can be no more than one development company per game. If two companies could meet the tests, it is the one more directly engaged in the qualifying activities.

What makes a video game qualify?

Section 1179FA CTA 2009 sets three conditions. The game must be intended for supply to the general public, it must be certified as British, and at least 10% of its core expenditure must be UK expenditure, meaning spending on goods and services used or consumed in the UK.

  • Intended for supply. The intention is tested at the end of each accounting period. If a game is no longer intended for supply, it cannot qualify for that period or any later one, although credits for earlier periods are not clawed back.
  • British certification. The game must pass the video games cultural test. The British Film Institute certifies games on behalf of the Department for Culture, Media and Sport, issuing an interim certificate while work is in progress and a final certificate on completion. If no final certificate is obtained, credits paid on the interim certificate must be repaid, unless the game was abandoned.
  • Minimum UK expenditure. Whether the 10% condition is met is only known after the completion period. Returns for earlier periods must include a statement of anticipated total and UK core expenditure showing the condition is expected to be met.

Games produced for advertising or promotional purposes, or for gambling as defined in the Gambling Act 2005, are excluded. HMRC’s guidance at CREC027000 explains that carrying adverts inside a game, or selling cosmetic items in a closed economy, does not by itself disqualify it, but a game that lets players cash out real money or tradeable cryptoassets is likely to be gambling.

Which costs count as core expenditure?

The legislation describes four phases: initial concept design, design (pre production), production and testing. Core expenditure is spending on designing, producing and testing the game. Costs of initial concept design, debugging and post release maintenance are not core. Where a person works across phases, for example a designer who spends the first three months on the concept and nine months on later work, costs must be apportioned on a just and reasonable basis.

Some expenditure is excluded even if it is core:

  • expenditure on which the company could claim research and development relief, whether or not a claim is made (see research and development tax relief);
  • amounts still unpaid four months after the end of the accounting period in which they were recognised, until they are paid;
  • the connected party profit on a transaction with a connected company that is not priced at arm’s length. Only the profit element is excluded, and connected party transactions must be disclosed on the additional information form or they cannot count at all. The arm’s length principle borrows from transfer pricing, discussed in transfer pricing for SMEs.

How is the expenditure credit calculated?

HMRC’s guidance at CREC060100 sets out five steps, applied cumulatively for each game:

  1. Find the relevant global expenditure (core, non excluded expenditure) incurred to date.
  2. Deduct expenditure that is not UK expenditure to find UK expenditure.
  3. Take the lower of UK expenditure and 80% of relevant global expenditure. This is qualifying expenditure to date.
  4. Deduct the qualifying expenditure to date used in the last period in which a credit was claimed for the game.
  5. Multiply the result by the rate, which for VGEC is 34%.

Credits for all of a company’s games, and any Audio Visual Expenditure Credit, are added together before redemption.

How is the credit turned into a tax saving or a payment?

The credit is taxable at the main rate of Corporation Tax, so its value after tax is lower than 34%. Section 1179CC CTA 2009 then sets out the redemption steps:

  1. Discharge the company’s Corporation Tax liability for the period.
  2. Reduce the remaining credit to the initial credit net of a notional tax charge at the main rate. The amount removed is withheld and carried forward, or surrendered to a group member.
  3. Discharge Corporation Tax liabilities for other periods.
  4. Optionally surrender some or all of the remainder to a group company.
  5. Discharge any other liabilities owed to HMRC, such as VAT.
  6. Pay the balance to the company.

Before Step 1, any credit withheld in earlier periods and any credit received from group members must be used against the current liability. HMRC will only make the Step 6 payment if the company is not in administration or liquidation, HMRC has not opened an enquiry into the return, and the company has no unpaid PAYE, Class 1 National Insurance or withholding tax for visiting performers. Group surrender follows the group definitions used for group relief.

What does a worked example look like?

Illustration only. A loss making development company completes a game in one accounting period. Total core expenditure is £1,000,000, of which £900,000 is UK expenditure. It has no Corporation Tax liability, no group and no other debts to HMRC.

Step Amount
80% of total core expenditure £800,000
UK core expenditure £900,000
Qualifying expenditure (lower figure) £800,000
VGEC at 34% £272,000
Withheld at Step 2 (notional tax at 25%) £68,000
Payable at Step 6 £204,000

The £68,000 withheld is not lost. It is carried forward and used against future Corporation Tax liabilities, or surrendered to a group company. If only £500,000 of the core expenditure had been UK expenditure, qualifying expenditure would be £500,000 and the gross credit £170,000.

How does VGEC replace Video Games Tax Relief?

VGEC and the Audio Visual Expenditure Credit can be claimed on expenditure incurred from 1 January 2024. They were initially optional. They became mandatory for new productions from 1 April 2025, and for games that had started but not entered the production phase by that date, expenditure from 1 April 2025 is only eligible for VGEC. The former reliefs, including Video Games Tax Relief, cease on 1 April 2027, after which all expenditure can only be relieved through the expenditure credits.

Video Games Tax Relief used a European expenditure condition. Where a game that claimed under the old relief opts in to VGEC before its completion period, HMRC explains at CREC092300 that the old 25% European test applies to expenditure before the opt in and the 10% UK test applies only to expenditure from the opt in period onwards.

How and when is a claim made?

The credit is claimed in the Company Tax Return. For returns submitted on or after 6 April 2026, the CT600P Creative Industries supplementary page must be included. The company must also submit an additional information form with, for each game, the British certificate (a final certificate once the game is complete, in date when submitted), statements of core costs split between UK and non UK, a breakdown of costs by category and details of connected party transactions.

A claim can be made, amended or withdrawn up to two years after the end of the period of account to which it relates. HMRC may accept late claims in some circumstances. For general return deadlines see Corporation Tax deadlines.

What mistakes cause problems with VGEC claims?

  • Including initial concept, debugging or post release maintenance costs as core expenditure.
  • Claiming VGEC on costs that also qualify for research and development relief. They are excluded from VGEC even if no research and development claim is made.
  • Failing to disclose connected party transactions, which removes them from the claim entirely.
  • Forgetting to obtain and submit the final BFI certificate, which puts earlier credits at risk of repayment.
  • Treating the 34% as the net benefit. The credit is taxable, and Step 2 withholds an amount equal to notional tax at the main rate.

For how the credit fits into the wider charge on company profits, see Corporation Tax explained. The cultural reliefs for live performance work differently and are covered in theatre tax relief.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.