UK Video Games Development Relief (VGDR): Tax Credits for Game Studios 2026

The UK video games industry generates billions of pounds of economic output each year and employs tens of thousands of developers, artists, designers and producers. To support this sector, the UK government provides a dedicated tax credit — Video Games Development Relief (VGDR) — that can significantly reduce a studio's corporation tax bill or, for pre-revenue companies, generate a cash repayment.

This guide explains how VGDR works under the reformed system introduced in 2024, who qualifies, what the rates are and how to make a successful claim.

From VGTR to VGDR: The 2024 Reform

The original creative industry tax reliefs — including the old Video Games Tax Relief (VGTR) — operated as an additional deduction against taxable profits. From 1 January 2024, these were replaced by a new above-the-line expenditure credit framework, mirroring the approach taken for the Research and Development Expenditure Credit (RDEC).

Under the old VGTR, a company received an enhanced deduction equivalent to 25% of qualifying expenditure, which then interacted with the corporation tax rate. Under VGDR, the credit is calculated more transparently as a percentage of expenditure and sits above the tax line — it is visible as income in the profit and loss account before any tax is deducted.

For game companies already in the middle of a project on 1 January 2024, transitional rules applied to allow completion under the old regime in certain circumstances. New projects beginning on or after that date use VGDR from the outset.

Who Can Claim VGDR?

The Video Games Development Company (VGDC)

Only one company per game can claim VGDR: the Video Games Development Company. This is the company that is responsible for the design, production and testing of the video game. Typically this is the developer, not the publisher — though in cases where one company handles both roles, it may be the same entity.

The VGDC must be:

• UK-resident for corporation tax purposes or trading through a UK permanent establishment
• Subject to corporation tax (partnerships, sole traders and individuals cannot claim)
• Directly responsible for the design, production and testing of the game

If a publisher commissions a third-party studio to develop a game, the studio is the VGDC and the eligible claimant — not the publisher.

The British Film Institute Cultural Test

The game must qualify as a British video game by passing the BFI cultural test. This requires a minimum score of 16 points out of a possible 31, awarded across four sections:

Section A — Cultural Content (up to 16 points)

• UK settings, locations or events
• British characters or perspectives
• Themes of cultural relevance to the UK or British Isles
• Underlying content based on British IP (books, history, heritage)

Section B — Cultural Contribution (up to 4 points)

• Whether the game portrays a specific aspect of British culture, heritage or diversity

Section C — Cultural Hubs (up to 9 points)

• Game development, audio work and localisation conducted at UK facilities

Section D — Practitioners (up to 2 points)

• The game director and/or lead writer are British or EEA nationals

A provisional certificate is obtained before claiming, with a final certificate issued on completion. BFI administers the certification process with HMRC.

What Expenditure Qualifies?

VGDR applies to core expenditure — the costs of designing, producing and testing the video game. This includes:

• Developer salaries and freelancer costs for programmers, artists, animators, designers, writers and QA testers
• Tools and software licences used directly in development
• Audio production including voice acting, sound design and music composition
• Motion capture costs attributable to the game
• Outsourced development services where the VGDC bears the creative and financial risk

It does not include marketing, distribution, PR costs or general overhead not directly attributable to development.

The 80% UK Expenditure Rule

To qualify, at least 10% of core expenditure must be incurred on goods, services or facilities in the UK. There is no upper limit on UK expenditure, but the credit is calculated on the lower of:

• Actual UK core expenditure, or
• 80% of total core expenditure

In practice, this means the credit effectively caps qualifying expenditure at 80% of total development costs, even if all development occurs in the UK. For a studio spending entirely in the UK, the credit is: 34% × 80% × total core expenditure = 27.2% of total core expenditure.

The Credit Rate and How It Works

VGDR credit rate: 34%

This applies to qualifying UK core expenditure (subject to the 80% cap). The credit is above-the-line — it is recognised as income in the profit and loss account in the accounting period in which the qualifying expenditure is incurred.

Credit Against Tax Liability

The taxable credit reduces the corporation tax liability. Working through an example:

A studio incurs £2 million of total core expenditure, all in the UK.

• Qualifying expenditure: 80% × £2m = £1.6m
• VGDR credit: 34% × £1.6m = £544,000
• This credit is treated as taxable income, so at 25% corporation tax rate: £544,000 × 25% = £136,000 tax on the credit
• Net credit benefit: £544,000 − £136,000 = £408,000

For a company with profits below £50,000, the 19% small profits rate applies, giving a net benefit of £544,000 × (1 − 19%) = £440,640.

Payable Credit for Loss-Making Studios

If the studio has insufficient corporation tax liability to absorb the full credit, the excess can be surrendered for a cash repayment. This is particularly valuable for early-stage or pre-revenue developers. The cash repayment equals the unused credit amount.

This means a loss-making indie studio with no tax to pay can still receive a cash injection from HMRC based on its qualifying development spend — effectively reducing the net cost of development by up to 27.2 pence per pound spent.

How to Claim VGDR

Step 1: Obtain a BFI Provisional Certificate

Apply to the BFI for a provisional cultural certificate before or during development. The application requires a description of the game and supporting evidence for the cultural test points claimed.

Step 2: Track Qualifying Expenditure

Maintain detailed records of all core expenditure, clearly identifying UK spend versus non-UK spend. Payroll records, contractor invoices and timesheets should be retained.

Step 3: File the Corporation Tax Return

VGDR is claimed through the CT600 supplementary pages. Include:

• Total core expenditure and UK core expenditure
• The credit calculation
• Any surrender for payable credit

Step 4: Obtain the Final BFI Certificate

On completion of the game, apply to BFI for a final cultural certificate. This is required to finalise the VGDR claim for the completion year.

Claim Deadline

Claims can be made up to two years after the end of the accounting period in which the qualifying expenditure was incurred. Amended returns can also be submitted within this window.

VGDR vs. R&D Credits

Some game studios also incur qualifying expenditure under the R&D tax credit regime — for example, novel engine development or genuinely novel technical challenges in game mechanics. VGDR and R&D credits cannot be claimed on the same expenditure, but a studio may be able to claim R&D credits on qualifying R&D costs and VGDR on other development costs.

Careful allocation of costs is required to maximise both claims without double-counting. HMRC expects robust record-keeping to support dual claims.

The Bottom Line

VGDR is a genuinely valuable relief that can dramatically reduce the net cost of game development in the UK. At 34% on up to 80% of total core expenditure, a well-structured claim can return over 27p for every pound of development spend — and for loss-making studios, this comes as a cash payment rather than just a tax reduction.

The key requirements are UK residence, passing the BFI cultural test and maintaining clean records of UK versus non-UK expenditure. Given the complexity of the certification and claiming process, most studios benefit from working with a creative industry tax specialist to maximise their entitlement and avoid common pitfalls.