Indie Dev’ Guide 7: R&D Tax Relief Claims for SMEs

Video Games are a high-growth industry, and the technology underpinning them are constantly being pushed further to accommodate ever increasing complexity and efficiency in Game development.

Fortunately, the UK government recognise the innovation that UK companies undertake to push the technical bar ever higher in the video games industry, by offering generous UK tax reliefs to qualifying companies undertaking Research and Development (R&D) activities in both software and hardware. This relief is available to all companies including Video Game Developers and technical support Studios to reduce their tax bill, or sometimes even claim repayable Cash Credits based on a proportion of their R&D expenditure.

The amount of relief available will depend on which accounting period your company is making a claim for:

• For expenses up to 31 March 2023, qualifying small and medium sized companies can claim an additional 130% enhancement of their R&D expenditure, saving Corporation Tax at 19%. Loss making companies can also surrender this for a tax credit of 14.5%.

• For expenses post 31 March 2023 in accounting periods commencing before 1 April 2024, qualifying small and medium sized companies can claim up to an 86% additional enhancement of their R&D expenditure, saving Corporation Tax at up to 25%. Loss making companies can also surrender this for a Tax Credit of 10% (14.5% if R&D intensive).

• For accounting periods commencing on or after 1 April 2024, a new merged scheme is available to pay all-sized companies a tax credit valued up to a net 16.2% of qualifying R&D costs. Loss making R&D intensive small and medium sized companies can also claim enhanced expenditure up to 86% on qualifying costs, with a 14.5% tax credit available.

Does your company undertake R&D activity? Some key highlights and considerations of R&D tax relief are:

• Who Can Claim: Your Video Game company can claim R&D tax relief if it’s liable to Corporation Tax and directly involved in carrying out Research and Development. This could include, for example, developing new game engines, creating advanced graphics rendering techniques, or solving technological challenges in online multiplayer networking. Your company must be taking a risk by attempting to ‘resolve scientific or technological uncertainties’ not easily determined by a competent professional in the field.

• What You Can Claim: Additional tax relief against your company’s taxable profits can be obtained from your qualifying R&D costs, which could include staff costs, software, subcontracted development, and consumable items like electricity used in R&D.

•What Type Of Relief Is Available: The R&D tax relief scheme has undergone many changes in the recent years. The amount of relief available will depend on many factors including which period you make a claim for, how large your company is (or the company you are contracting development for), and how much R&D work your company performs as a total of your total expenditure.

• When You Can Claim: The time limit for making a claim is normally 2 years after the end of the relevant Corporation Tax accounting period.

• Notification to Claim: New rules require first-time claimant companies, or companies who have not made a claim for 3 years, to notify HMRC in advance of making a claim to R&D tax relief. This must be done within 6 months of the end of the accounting period in which the company wishes to claim for. Failure to notify HMRC will result in R&D tax relief being unavailable, so it is crucial that you consider R&D tax relief with your accountant as early in the project as possible to meet all relevant deadlines.

• How to Claim: You can claim for relief on your Company Tax Return. You’ll need to enter the total qualifying expenditure on your Company Tax Return form, and then make your claim in the calculations that accompany your return. An Additional Information Form must also be sent to HMRC separately before the submission of the company’s tax return which details the R&D projects and costs to be claimed.

• Restrictions For Relief: Do bear in mind that R&D tax reliefs are a separate relief to Video Games Tax Reliefs/Expenditure Credits, and both reliefs cannot be claimed on the same expenditure. Relief may also be restricted on expenditure funded by grants. Repayable tax credits may also only be available only if they cannot first be offset against other taxable profits or other HMRC liabilities, and can be restricted to the company’s PAYE spend.

Please note that the rules can be complex, and the specifics will depend on whether your company is classified as a ‘small or medium-sized enterprise’ (SME) or a ‘large company’. It’s always a good idea to consult with a tax professional or advisor to ensure you’re maximising your benefits and staying within the guidelines. Plus Accounting have a dedicated R&D advisory team who can support your company with assessing a potential claim, and preparing/submitting this to HMRC with the company’s tax return.

Full list of Guides

• Guide 9: Understanding your Accounts
• Guide 10: British Film Institute (BFI) certification
• Guide 11: Business Expenses
• Guide 12: Withholding Tax on overseas income
• Guide 13: Benefits of an Audit
• Guide 14: Video Games Expenditure Credit
• Guide 15: Taxation of Non-Cash Benefits for Employees and Directors in the Gaming Sector
• Guide 16: Management Accounts and Forecasting in the Gaming Sector
• Guide 17: Bookkeeping Software for the Gaming Sector 

Want to learn more?

Get in touch with our in house expert Luke Thomas to see how we can help.