Ultimate Guide to Video Games Expenditure Credit (VGEC): What You Need to Know

Ultimate Guide to Video Games Expenditure Credit (VGEC): What You Need to Know covers complete eligibility rules, tax benefits, claim process, and expert tips to help developers maximize financial support for their video game production projects while ensuring full VGEC compliance and approval.

MHC & Co Creative Industry Specialists

The UK video games industry contributes £2.9 billion annually to the economy. With the new Video Games Expenditure Credit (VGEC), eligible companies can claim up to 34% relief on development costs, potentially saving thousands on each project.

What is the Video Games Expenditure Credit (VGEC)?

The Video Games Expenditure Credit (VGEC) is a new tax relief scheme introduced in April 2024 to support the UK video games development industry. It replaces the previous Video Games Tax Relief (VGTR) with enhanced benefits and a simplified claiming process.

Offers a payable credit of up to 34% on qualifying expenditure
Available to companies developing video games in the UK
Designed to encourage investment in British game development
Part of the UK government’s creative industry tax reliefs overhaul

Key Changes from VGTR to VGEC

The new VGEC scheme introduces several important changes from the previous VGTR system:

Feature	Old VGTR System	New VGEC System
Credit Rate	25% on up to 80% of budget	34% on all qualifying expenditure
Calculation Method	Additional deduction + payable credit	Expenditure credit only
Minimum Spend	£1,000,000 per game	No minimum spend requirement
Cultural Test	Required for all games	Replaced with new eligibility criteria
Claim Timing	After game completion	During development (interim claims)

Eligibility Criteria for VGEC

Company Requirements

To qualify for VGEC, your company must be:

Registered in the UK for corporation tax purposes
Acting as the video games development company
Responsible for designing, producing and testing the game
Not acting as a publisher only (unless also developing)

Game Requirements

The video game being developed must:

Be intended for supply to the general public
Not be produced for advertising or promotional purposes
Not contain elements of gambling
Meet the new British cultural test or qualify through international co-production agreements

What Expenditure Qualifies for VGEC?

The VGEC applies to core development costs including:

Expenditure Type	Examples	Percentage Qualifying
Staff Costs	Salaries, pensions, benefits for development team	100%
Software & Tools	Game engines, development software, licenses	100%
Assets & Content	Motion capture, sound design, voice acting	100%
External Services	Outsourced programming, art, QA testing	80%
Overheads	Rent, utilities for development space	Up to 5% of total qualifying expenditure

How to Calculate Your VGEC Claim

VGEC Calculation Formula:
Qualifying Expenditure (QE) × 34% = Gross Credit
Gross Credit × Corporation Tax Rate (25%) = Net Credit

Example Calculation:
Total Qualifying Expenditure: £500,000
Gross Credit: £500,000 × 34% = £170,000
Net Credit: £170,000 × 25% = £42,500

The net credit of £42,500 can be used to reduce your corporation tax bill or may be payable in cash if you’re loss-making.

Step-by-Step Claim Process

Step 1: Pre-production Assessment

Before beginning development, assess your game’s potential eligibility and set up systems to track qualifying expenditure separately.

Step 2: Ongoing Documentation

Maintain detailed records throughout development including:

Timesheets for all development staff
Invoices for all external services
Asset creation records
Development progress reports

Step 3: Interim Claims

You can make claims during development rather than waiting until completion:

File an Interim Certificate with HMRC
Claim for expenditure incurred to date
Submit through your corporation tax return

Step 4: Final Claim

Within 12 months of game completion, submit your final claim including:

Final calculation of qualifying expenditure
Completion certificate
Cultural test confirmation (if applicable)

Real-World Examples

Example 1: Small Indie Developer

Studio Size: 5-person indie studio
Project Budget: £200,000
Qualifying Expenditure: £180,000
VGEC Calculation:
Gross Credit: £180,000 × 34% = £61,200
Net Credit: £61,200 × 25% = £15,300

Impact: The £15,300 credit represents a 7.65% reduction in overall project costs, potentially making the difference between profitability and loss.

Example 2: Medium-Sized Studio

Studio Size: 25-person development team
Project Budget: £1.2 million
Qualifying Expenditure: £950,000
VGEC Calculation:
Gross Credit: £950,000 × 34% = £323,000
Net Credit: £323,000 × 25% = £80,750

Impact: The £80,750 credit can fund approximately 6-7 months of additional development time or be reinvested in marketing.

Common Mistakes to Avoid

Mistake	Consequence	Prevention
Poor expenditure tracking	Missing out on eligible claims	Implement dedicated accounting systems
Incorrectly classifying staff	HMRC challenges to claims	Clear role definitions and timesheets
Missing deadlines	Loss of entitlement	Maintain a claims calendar
Overlooking subcontractor limits	Reduced claim amount	Careful tracking of external costs
Failing cultural test	Complete ineligibility	Early assessment and planning

VGEC Timeline and Important Dates

Transitional Rules

For projects that began under the old VGTR system:

You can continue under VGTR until 31 March 2027
Alternatively, you can elect to move to VGEC
Once moved to VGEC, you cannot revert to VGTR
Special rules apply to expenditure spanning both regimes

How VGEC Compares to Other Creative Reliefs

Tax Relief	Credit Rate	Industry	Minimum Spend
Video Games Expenditure Credit (VGEC)	34%	Video Games	None
Audio-Visual Expenditure Credit (AVEC)	34%	Film & TV	£1 million
Theatre Tax Relief (TTR)	Up to 50%	Theatre	None
R&D Expenditure Credit (RDEC)	20%	All Industries	None

Need Help With Your VGEC Claim?

Our creative industry specialists can help you maximize your Video Games Expenditure Credit claims and ensure compliance with HMRC requirements.

Get VGEC Specialist Advice