What do I need to know about Video Games Expenditure Credit (VGEC)?

A complete guide for UK developers

Video Games Expenditure Credit (VGEC) is the tax relief scheme for UK video game developers, replacing Video Games Tax Relief (VGTR). It offers a taxable expenditure credit of 34% of qualifying UK development costs, worth 25.5% net after Corporation Tax. It applies to core costs incurred from 1 January 2024 and is mandatory for all games that started production on or after 1 April 2025. VGTR remains available for older projects until it closes on 31 March 2027.

What is VGEC and why was it introduced?

In the Spring Budget 2023, the government announced that VGTR would be replaced by an expenditure credit model, aligning video games with the approach already used for film, high-end TV and R&D relief. VGEC became available for qualifying expenditure incurred from 1 January 2024, and it is now the only relief open to video games that started production on or after 1 April 2025.

The change moves video games from a deduction-based relief to an above-the-line credit. Rather than reducing taxable profits, VGEC is brought into the accounts as taxable income first, then reduced by a notional tax charge, which makes the value of the relief more visible and predictable in a company’s accounts, something finance teams and investors both tend to prefer.

VGEC is expected to further support the UK video game industry by providing higher relief rates, fostering innovation, and enhancing the sector’s growth and international competitiveness.

Who can claim VGEC?

VGEC is claimed by the video game development company (VGDC), defined as the company responsible for designing, producing and testing the game. To qualify as the VGDC, a company must be actively involved in planning and decision-making throughout the development, and must negotiate, contract for, and pay for the rights, goods and services used in the game. Only one company can be the VGDC for a given game, though that company does not have to be the one that ultimately publishes it or distributes it.

Eligibility criteria

To claim VGEC, the video game must:

Be designed, produced and tested by a company subject to UK Corporation Tax.
Meet the UK expenditure requirement: at least 10% of core costs must be UK expenditure, meaning goods or services used or consumed in the UK.
Be certified as British by the British Film Institute (BFI) cultural test.
Be intended to supply to the general public.
Not be produced solely for advertising, promotional or gambling purposes.

The BFI cultural test

The cultural test assesses the game against a points system covering cultural context, cultural contribution, cultural hubs, and cultural practitioners.

Points are available for factors such as where the game is set, the cultural background of lead characters, and where development work and key creative roles are based. The BFI issues an interim certificate before completion, so a claim can start while the game is still in development, followed by a final certificate once the game is finished. See our full breakdown: How to pass the BFI Cultural Test for video games

Qualifying Costs

Core costs eligible for VGEC include expenses related to designing, producing, and testing the game, such as salaries, animation and audio costs, and payments to third-party contractors. It excludes initial concept development, debugging, any post-completion maintenance work and any outstanding payments which remain unpaid more than four months after the end of the accounting period, until settled.

Two categories of cost are specifically excluded from qualifying expenditure: costs that are already eligible for R&D tax relief, and non-arm’s-length transactions with connected parties. Connected party costs can still qualify, but only at their arm’s length value.

How much can I claim?

Companies can claim VGEC through the Corporation Tax system. The relief allows for an expenditure credit at a rate of up to 34% of qualifying expenditure. Qualifying expenditure will be the lower of either 80% of total core costs or the amount of UK core costs.

Worked example:

A gaming studio incurs £2 million of total core expenditure on a game, of which £1.8 million (90%) is UK expenditure. Qualifying expenditure is the lower of 80% of £2 million (£1.6 million) and the UK expenditure of £1.8 million, so qualifying expenditure is £1.6 million. Applying the 34% rate then gives a gross credit of £544,000. After the notional 25% Corporation Tax charge, the net benefit is £408,000, equivalent to 25.5% of qualifying expenditure.

How the credit is paid

Once calculated, VGEC is used in a set order:

Firstly, it discharges any Corporation Tax liability for the accounting period.
Any credit that remains after this is reduced by the notional 25% tax charge.
Offset other liabilities or group surrender: The remaining net credit can be used to settle Corporation Tax liabilities of other periods, surrendered to group members, or offset against other outstanding HMRC debits (such as VAT or PAYE).
Payable cash credit: HMRC directly pays out any remaining balance in cash, provided the company is not in liquidation or administration.

VGEC can be a cashflow tool for studios that have not yet released a game and have no Corporation Tax bill to offset it against.

How to claim VGEC:

Apply to the BFI for an interim cultural certificate, which confirms that your game meets British criteria before it’s completed. This allows you to start claiming relief as you go.
Account for the video game development to be treated as a separate trade for tax purposes, a prerequisite for claiming VGEC.
Prepare a detailed breakdown of qualifying expenditure, including the project name, start date of active development, and details of any connected party transactions.
Submit an Additional Information Form (AIF) to HMRC before filing the Corporation Tax return, together with the BFI certificate.
Include the VGEC claim in the company’s tax return for the relevant accounting period.

Keep detailed records of staff time, contractor payments and connected party transactions as you go. This matters most for games developed across multiple accounting periods, where costs must be tracked cumulatively year on year.

VGTR vs VGEC: What’s changed

VGTR remains open for games that started incurring core costs before 1 April 2025, up until the scheme closes on 31 March 2027. New productions must claim under VGEC. The table below summarises the main differences:

Feature	Video Games Tax Relief (VGTR)	Video Games Expenditure Credit (VGEC)
Relief type	Additional deduction against taxable profits	Above-the-line taxable expenditure credit
Headline rate	80% additional deduction on qualifying core spend	34% gross taxable expenditure credit
Net benefit / Payable rate	Up to 20% of core spend (surrendering losses at 25%)	25.5% net benefit (after 25% notional CT)
Territorial spend test	At least 25% of core costs incurred in the UK or EEA	At least 10% of core costs used or consumed in the UK
Applicability	Productions starting development before 1 April 2025 (expenditure eligible up to 31 March 2027)	Expenditure incurred from 1 January 2024; mandatory for productions starting on/after 1 April 2025
Sunset / Closure	Ceases permanently on 31 March 2027	Ongoing regime

What else changed in qualifying costs?

Beyond the headline rate and territorial test above, three changes affect what actually counts as qualifying expenditure:

Connected party payments: Under VGEC, payments to a connected party (a group company, for example) only qualify up to that party’s own cost. Any profit margin or mark-up is excluded, unless the transaction is priced at arm’s length. VGTR did not restrict this in the same way, so this is the change most likely to affect group structures and IP licensing arrangements between connected companies.
Subcontractor caps removed: VGTR capped how much subcontractor spend could qualify over a game’s development. VGEC removes that cap entirely.
EEA expenditure no longer counts: VGTR allowed qualifying spend in the UK or the EEA. VGEC only counts UK expenditure that is used or consumed in the UK, so EEA costs that qualified before no longer do.

Can I claim VGEC and R&D tax relief together?

Not on the same costs. Any expenditure that qualifies for R&D tax relief is specifically excluded from VGEC’s qualifying expenditure, so you’ll need to decide which relief is more valuable for each cost, rather than claiming both on the same spend. Studios doing genuine technological R&D alongside game development, for example building new engine technology, may still be able to claim R&D relief on that separate work.

VGEC FAQs

Is VGEC better than VGTR?

Not necessarily. Although VGEC has a higher headline rate of 34%, compared with VGTR’s 20%, it only applies to qualifying UK expenditure. Developers with significant EEA development costs may therefore receive substantially less under VGEC, as those costs could qualify under VGTR but are excluded from the VGEC cost base. The better outcome will depend on where the developer incurs its costs and its wider tax position.

Can loss-making studios claim VGEC?

Yes. This is one of the scheme’s main practical benefits for pre-revenue studios. Where there is no Corporation Tax liability to offset, the net credit can be paid out by HMRC as cash, supporting cashflow before a game has generated any revenue.

How long does a VGEC claim take to process?

The BFI aims to process interim cultural certificates within 28 days of a completed application. The HMRC claim itself is filed alongside the Corporation Tax return, so the timeline depends on your filing schedule and how quickly the supporting expenditure evidence can be prepared.

Do I need to be UK-based to claim VGEC?

The VGDC must be within the charge to UK Corporation Tax, but development work itself can happen anywhere. The 10% UK expenditure requirement is about where core costs are used or consumed, not about the nationality of the studio or its staff.

How can Price Bailey support you?

Price Bailey are experts in the gaming industry and can provide cross-departmental advice to offer you accurate, efficient guidance.

Contact us today to learn how we can support your journey with expert advice on business planning, tax relief, and funding. More information on the services we offer to the gaming industry can be found here.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information on this page is intended as a general guide only. While we work to keep our content accurate and up to date, we cannot guarantee that it reflects the position at the time you are reading it. No responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm. For more information on our editorial process, click here.

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