Tax Relief For Game Development

Video Games Expenditure Credit (VGEC)

A couple of years ago, the UK introduced the Video Games Expenditure Credit (VGEC) as the new tax relief for video game development. This relief replaces its predecessor, Video Games Tax Relief (VGTR), whereby for all new developments since April 2025 VGEC now forms the central government incentive supporting the UK’s thriving games and interactive entertainment sector.

At its core, VGEC is an above-the-line expenditure credit—operating similarly to the Research and Development Expenditure Credit (RDEC) used in the wider innovation landscape. The credit is calculated as a percentage of qualifying “core expenditure”, covering activities such as design, coding, animation, asset creation, and quality assurance. VGEC does though carry a heavy UK expenditure requirement, whereby;

• At least 10% of the “core expenditure” (broadly design, production and testing of a video game) must be incurred and consumed within the UK, and
• Total qualifying spend is then capped at the lower of 80% of the project’s total core expenditure and the amount of UK core expenditure.

To access the credit, a company must be the Video Games Development Company (VGDC)—the entity responsible for designing, producing, testing and delivering the final game. The game must be intended for commercial release and must pass the British Film Institute (BFI) cultural test, ensuring it contributes creatively, culturally, or economically to the UK. This test remains broadly consistent with the previous VGTR rules.

VGEC offers a headline credit rate of 34%, which appears as income “above the line” in the profit and loss account. The credit is taxable, giving a typical net benefit of around 25.5% (assuming a corporation tax rate of 25%) of qualifying expenditure. That is relatively similar to the effective rate of credit afforded by VGTR at 25%. This structure may though be commercially preferable because it directly boosts EBITDA, improving visibility of project economics and supporting investment decisions.
Where a project is loss-making, the credit can be paid out in cash by HMRC, providing an important source of non-dilutive funding for early-stage and scale-up studios. Costs that do not qualify include marketing, distribution, user acquisition, hardware, hosting and ongoing live-ops work beyond the initial launch.

VGEC sits in a broader ecosystem of UK innovation incentives. Many companies in the gaming and interactive tech space continue to access R&D tax relief alongside VGEC, provided the same expenditure is not claimed twice. Together, these incentives make the UK one of the most competitive jurisdictions globally for games development.

For tech and gaming companies embarking on new productions, VGEC now represents the primary mechanism for securing tax-efficient support—modernising the incentive framework and strengthening the UK’s position as a world leader in creative technologies.

Important to note for 2026, however, that there remains a choice for any developments which commenced prior to April 2025 as to whether to adopt VGEC or still apply VGTR rules as transitional rules remain in effect for those developments up to April 2027 and it could prove advantageous to make use of VGTR until its ultimate expiration date.

 

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