What it is, why it matters, why we’re talking about it now (and how we think GTA V passed the cultural test)
What is Video Games Tax Relief (VGTR)?
Video Games Tax Relief (VGTR) is a government scheme that allows UK game developers to apply for tax relief funding from HMRC. The computer game must qualify as being British under the Video Games Cultural Test which is administered by the British Film Institute (BFI).
What does it take to pass the BFI Video Games Cultural Test?
The cultural test is a points-based test where the project needs 16 of a possible 31 points to pass. Points are awarded for cultural content (is the game set in the UK, do the characters speak English etc); cultural contribution (does the game reflect British creativity, British heritage or diversity); cultural hubs (game needs to be at least 50% created in the UK); personnel (that the team are EEA residents).
What can you get if you pass the test and are awarded VGTR?
Video Games Tax Relief is worth up to 20% of the core production costs of a game.
Why are we talking about VGTR now (not that it isn’t a perennially sexy topic)?
A report from Tax watch UK revealed that Rockstar North, the UK-based developers who created Grand Theft Auto V, received £42 million in VGTR between 2015–2017, and paid £0 in corporation tax between 2009–2018, despite an estimated operating profit of $5billion over the last 6 years.
How did Grand Theft Auto V qualify for VGTR?
Excellent question. Firstly, it’s worth noting that the BFI do not comment on certification matters. Secondly, here are my thoughts:
As mentioned above, to qualify you need to pass the ‘cultural’ test. To do so, you have to score 16 points out of 31 from a list of assessment criteria which can be found here in short and here in longer form.
Looking at GTA V against the BFI checklist, here’s what happens:
Section A — it likely doesn’t score anything in box A1 or A2. But A3 and A4, it likely scores a full 8 points. It probably gets 4 on A3 because GTA as a cultural construct is British. Yes, it’s set in an American city but it was invented in Dundee and is built on British humour. And on A3, it gets a further 4 points because the whole game is voice acted in English.
Section B — Again, GTA V likely scores well on B (probably 4 points) because it’ll be considered British heritage. At this point, we’re at 12.
Section C and D — Then, GTA V runs up a cricket score here. Because of all the studios based in the UK, all of Section C it scores max points (3). At this point, if it scores one further point on section D (where 8 are available) it passes the test. And based on where its studios work, it does.
So GTA theoretically hits the 16 points easily enough. And when a game hits 16 points, the test stops and it is passed. So it could probably get more (maybe22/23 points) but it didn’t need to. It also, in the process, likely passes something called The Golden Points test. This says that if you don’t score points on A1 or A2, you have to score on A3 to get approval to ensure your game is culturally British.
OK, so they passed the cultural test and were eligible for VGTR. But hang on, they didn’t pay any corporation tax at all?
Yes- this is because Rockstar North are eligible for a large retrospective adjustment for tax paid in previous years. The effect of tax credits and previous year adjustments means that over 10 years the company recorded a net loss for tax purposes, paid nothing in corporation tax, and claimed £70m in credits from HMRC.
This seems, well, not ideal
It’s hard to argue with that. But Rockstar North and GTA V are only a tiny piece of the puzzle. VGTR has supported 1,110 claims since 2014, and more than half of claims successfully made under VGTR represented figures totalling £50,000 or less. As George Osborn, head of comms for Ukie pointed out, “it supports over 9000 jobs across the country and added £291m directly to UK economy”
Do say: VGTR allows the UK video games industry to continue to grow
Don’t say: Golly, British culture seems quite, well, American in GTA V, doesn’t it?