The impact on the Video Games Industry of the Autumn Statement 2022

David Marshall 14 December 2022

Chancellor of the Exchequer, Jeremy Hunt delivered his first budget in November 2022 and announced a number of changes that will have a significant impact on the Video Games Industry from April 2023 and beyond.

A shakeup of the incentives offered to innovative UK-based businesses was widely anticipated in the Autumn Statement 2022. But in reality, the nature of the reform announced by the Chancellor is mixed, with positive news for larger companies but for SMEs less so.

Following a high-profile exposé by The Times recently, revealing the extent of mis-use of the SME R&D Tax Credit claim system, a crackdown on fraudulent or ineligible claims was thankfully on the cards. Addressing the issue has been long overdue. However, it was disappointing to see that the Government is to merely introduce a scheme-wide reduction in the generosity level from the current 33.35% rate to 18.6% affecting genuine and illegible claims alike.

While this may make the scheme less appealing to nefarious parties, the broader effect will see all genuinely innovative SMEs punished as well. Most of the nation's most innovative Video Games developers are small, loss-making businesses who have become reliant on the R&D tax credit to take risks in developing games here in the UK. As of 1 April 2023, however, for every £100,000 these businesses spend on eligible R&D, they will receive only £18,600, rather than the £33,350 entitled to previously.

The impact will reverberate to small, profit making companies as well. The new, lower R&D tax credit with the higher 25% corporation tax rate, means their Tax Relief will reduce from 24.7% to 21.5%. So for every £100,000 of eligible expenditure the benefit will reduce from £24,700 to £21,500.

A real opportunity for the Government to actively target fraud and more alarmingly the large scale abuse of the scheme, has regretfully been missed. Smarter thinking could have brought some much needed reform to root out unscrupulous entities while still maintaining, or even increasing support for companies involved in genuine R&D.

This move may steer games developers to claim Video Games Tax Relief, especially as many small studios develop on standard gaming engines that do not qualify in most cases for the R&D Tax Credit. The government is also looking to change the way in which VGTR operates moving this to an above the line credit, in the same vein as the moves being mooted for the R&D Tax Credit.

The Chancellor has announced that a single scheme, combining the existing RDEC and R&D Tax Credit schemes, is under consideration. This presents an opportunity to remove the current disparity in relief for innovative loss-making SMEs that grow to become profitable.

The concern is, that the RDEC scheme, being an above the line credit, the task of finalising accounts and tax computations is burdensome and could be excessively onerous for SMEs to grapple with without the help of expert advice in this area.

A single scheme, however, is hopefully a positive sign and indicative of the Government's intention to continue to support innovative UK-based businesses.