Video Games Expenditure Credit (VGEC): A Complete Guide for UK Game Studios

The Video Games Expenditure Credit (VGEC) is the UK’s tax incentive for the video games industry, replacing the previous Video Games Tax Relief (VGTR) regime in 2024. Designed to boost investment in UK game development, the VGEC can provide significant financial support to studios of all sizes.

In this guide, we explain what the VGEC is, how it works, and the steps UK video game studios need to take to claim it.

What Is the Video Games Expenditure Credit?

The VGEC is a government-backed tax credit that helps reduce the cost of making culturally relevant video games in the UK. Its purpose is to strengthen the UK video game sector, encourage inward investment, and make the UK one of the most competitive places in the world to create games.

Unlike the old VGTR, the VGEC is structured as an expenditure credit, meaning it shows up directly in a company’s profit and loss account. This “above-the-line” design makes the benefit more visible and valuable to development teams.

Qualifying for VGEC

Not every video game will qualify for the VGEC. Studios must meet specific eligibility criteria to make a successful claim:

Video Games Development Company – For the purposes of VGEC, a video game development company (VGDC) is the company responsible for the design, production, and testing of the video game. To be eligible under the regime, the VGDC must have an active involvement in the planning and decision-making during the various stages listed above, and it must negotiate, contract, and pay for rights, goods and services in relation to the video game.

There can only be one VGDC in relation to a particular video game.

Cultural certification – The game must be certified as culturally British by the British Film Institute (BFI) using the video games cultural test, or qualify as an official co-production. Points are awarded for UK and EEA cultural content, contribution, and personnel.

Minimum UK expenditure – At least 10% of core development costs must be spent in the UK. This ensures that the scheme supports domestic activity. Core expenditure is UK expenditure if it is incurred on goods or services “used or consumed” in the UK.

Qualifying game type – The credit applies to games intended for supply to the general public. Games created for advertising, promotional purposes, or gambling are excluded.

Qualifying expenditure – Only core costs directly related to the design, production, and testing of the game count, but does not include expenditure on developing the initial video game concept, debugging the game, or carrying out any post-completion maintenance work. Marketing, distribution, and financing costs are also excluded.

Meeting these criteria is essential before a claim can be made. Studios often apply for an interim certificate from the BFI early in development to confirm eligibility before committing significant spend.

How Does the VGEC Work?

To claim the VGEC, there are specific steps that studios must follow.

Separate Trade Election

An election must be made for the video game development activity to be treated as a separate trade for tax purposes.

The separate trade is treated as beginning when the design stage of the game starts, or earlier if income is received.
From that point onwards, special rules apply to how income, expenditure, losses, and credits are recognised for that development.
Other than the calculation of the VGEC itself, the detailed trading rules fall outside this guide — but they are important to ensure compliance.

Calculation of the VGEC

The legislation sets out a five-step process to calculate the amount of expenditure credit a company can claim each year:

Calculate relevant global expenditure: This is the total “core expenditure” on design, production, and testing, less excluded costs such as concept development, distribution, and other non-production activities.
Deduct non-UK core expenditure: Core expenditure counts as UK expenditure if it is on goods or services “used or consumed” in the UK. Non-UK core expenditure is deducted resulting in UK core expenditure to date.
Identify total qualifying expenditure incurred to date: The qualifying expenditure is the lower of (i) 80% of relevant global expenditure, and (ii) the UK core expenditure.
Identify total qualifying expenditure incurred for the period: This is the total qualifying expenditure to date, minus qualifying expenditure to date in the previous submitted claim, if any.
Apply the relevant VGEC percentage: The qualifying expenditure is multiplied by the relevant percentage for video game development, which is 34%, to calculate the VGEC for the year.

Importantly, this calculation must be performed on a cumulative basis year-by-year. Any qualifying expenditure already claimed in a previous year cannot be claimed again.

Operation of the VGEC

Once calculated, the VGEC is treated as a taxable receipt in the profits of the separate development trade. A further six-stage process governs how the credit can be redeemed:

The VGEC is first set against the company’s corporation tax liability for the accounting period.
Any remaining balance is reduced by a notional tax charge at 25%.
The notional tax charge can either be surrendered to a group company or carried forward for use against future corporation tax liabilities.
The reduced VGEC amount can then be set against certain other liabilities of the company.
Then can be surrendered to a group company to set against their tax liabilities.
If any balance remains, HMRC may pay this out as a cash credit to the company.

This ensures that the VGEC provides a mix of corporation tax relief and, where appropriate, a cash benefit.

How to Claim the Video Games Expenditure Credit

Claiming the VGEC is done through a company’s annual corporation tax return along with the submission of the Additional Information Form to HMRC, but there are several key steps studios need to follow:

Apply for cultural certification

Submit an application to the BFI for an interim cultural certificate when development begins. Obtain a final certificate once the game is complete.

Track qualifying expenditure

Only core UK development costs count, including design, production, and testing. Studios will need to track and separate out UK core expenditure, non-UK core expenditure and non core expenditure for each game eligible for VGEC.

Prepare and submit HMRC's online Additional Information Form

For VGEC claims to be valid, studios must submit details of its claim to HMRC via their online Additional Information Form (AIF). This online form provides HMRC with details about each video game project being claimed such as when development started, breakdown of expenditure incurred, details of any connected party transactions and a copy of each BFI certificate.

The submission of the AIF must be done before the submission of the tax computation incorporating the claim, otherwise the claim will not be valid.

Prepare your tax computation

The claim is also included in the corporation tax return and should mirror the calculation provided in the AIF.

Receive the benefit

The credit reduces corporation tax liability, if any, with any excess paid as a cash credit, improving studio cash flow.

Many studios work with tax specialists to ensure accuracy and maximise the claim.

Why the VGEC Matters for UK Video Game Studios

For independent developers, the cash benefit of the VGEC can be a lifeline, helping fund salaries and production costs. For larger studios, the scheme reduces overall development costs and strengthens the UK as a hub for major projects.

With the right planning and record-keeping, the VGEC can make a real difference in bringing new titles to market and keeping UK creativity at the forefront of the global games industry.

How Glitch Free Can Help

Navigating the rules around the VGEC can be complex — from cultural certification to identifying qualifying costs, preparing the claim and VGEC's interaction with other corporation taxes. That’s where we come in.

At Glitch Free, we specialise in supporting video game studios with their accounting, tax, and VGEC claims. Whether you’re an indie developer or a large studio, we can help you maximise the benefit and manage the process from start to finish.

Get in touch with us today to find out how we can help your studio claim the VGEC and unlock valuable funding for your next project.