The term VAT is short for Value Added Tax. VAT is a tax placed on goods and services sold by UK businesses. Consumers pay VAT on the products they buy based on the value of the product. VAT rates are percentage based, so VAT payable will be determined by the value of the product sold.

The compulsory VAT registration threshold is £85,000. Your video games company must register for VAT if either:

  • your VAT taxable turnover is more than £85,000 in a rolling 12-month period,
  • you receive goods in the UK from the EU worth more than £85,000, or
  • you expect to go over the threshold in a single 30-day period.

You have 30 days from the month end in which you exceeded the registration threshold to register for VAT.

From the date your VAT registration is effective, you must begin to charge VAT on your sales at the applicable rate. You will normally be required to submit quarterly VAT returns using HMRC compatible software. If you incur VAT on the purchase of goods or services, once registered, you can reclaim this VAT. The VAT received (Output VAT) less the VAT incurred (Input VAT), will result in a balance payable to HMRC or refundable to the company.

It should be noted that goods and services supplied outside of the UK do not count towards your £85,000 VAT threshold. Therefore, if you receive game development income / game revenue from non-UK publishers or Platforms e.g., Steam, this income will not count towards the threshold.

You can voluntarily register for VAT at any time, if your turnover is below the VAT threshold or all from supplies outside the UK, if you can prove to HM Revenue & Customs that you are or will soon be trading. Supplies outside the UK will generally be outside the scope for UK VAT, so VAT would not usually be applied on sales.

You may wish to register for VAT voluntarily for several reasons including:

  • Enabling you to reclaim VAT on certain pre-VAT registration expenditure.
  • Where your business income is all from non-UK supplies, you can still reclaim all VAT incurred, boosting cash-flow, reducing costs & increasing profits.
  • Avoiding VAT being incurred on supplies from other EU Member states, by applying the Reverse Charge Rules.

It is recommended that you take professional advice on whether you should register for VAT and what the implications of doing so will be.

Gaming Blog Series

1- What do I need to start my own game studio?

2- What are the 5 key things I should do before starting my indie dev business?

3- Should I be a Sole Trade or Limited Company when starting my video games business?

Author: Luke Thomas, Director, Plus Accounting

Contact Luke

Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.

Date Published: 01 July 2021