Video Games Tax Relief in 2026: The Complete Guide for Indie Developers

If you're developing games in the UK, there's a government-backed tax credit that could hand you back a quarter of your development costs. Whether you're a two-person indie studio or a mid-size developer, this applies to you - and plenty of studios don't claim it. Here's everything you need to know.

First Things First: VGTR Is Dead. Long Live VGEC.

If you've seen articles about Video Games Tax Relief (VGTR), that scheme is being phased out. From 1 April 2025, any game that starts development must claim under the new Video Games Expenditure Credit (VGEC). Games already in development before that date can continue claiming VGTR until 31 March 2027, but after that the old scheme closes entirely.

The good news: VGEC is slightly more generous. The headline rate is higher, the subcontractor spending cap has been scrapped, and the claiming process is more streamlined. If you were eligible for VGTR, you're almost certainly eligible for VGEC.

How Much Can You Actually Get Back?

VGEC offers a 34% gross expenditure credit on qualifying UK core expenditure. Because it's an "above the line" credit that gets taxed at the Corporation Tax rate of 25%, the net benefit works out to 25.5% of your qualifying spend.

That's a meaningful amount of money for an indie studio. Here's what it looks like in practice:

Worked Example: Small Indie Studio

Your studio spent £200,000 developing a game, all in the UK.

Qualifying expenditure: 80% of £200,000 = £160,000 (the 80% cap applies)
Credit at 34%: £160,000 × 34% = £54,400 gross
After Corporation Tax (25%): £40,800 net

If your studio is loss-making (which many indie studios are during development), that £40,800 comes back to you as a cash payment from HMRC. That's real money in your account.

Worked Example: Mid-Size Studio

Your studio spent £1 million developing a game. £800,000 was spent in the UK, £200,000 on overseas contractors.

80% of total core expenditure: £800,000
Actual UK expenditure: £800,000
Qualifying expenditure: £800,000 (the lower of the two)
Credit at 34%: £800,000 × 34% = £272,000 gross
After Corporation Tax: £204,000 net

That's over £200,000 back - enough to fund a significant chunk of your next project.

Do You Qualify?

Most UK game studios do. The eligibility criteria are straightforward:

Your company must:

Be registered for UK Corporation Tax (individuals, partnerships, and LLPs can't claim - it has to be a limited company)
Be the Video Games Development Company (VGDC) - meaning you're responsible for designing, producing, and testing the game
Be actively involved in planning and decision-making throughout development

Your game must:

Be intended for release to the general public (it can't be made solely for advertising, promotion, or gambling)
Be certified as British by the BFI (more on this below)
Have at least 10% of core expenditure on activities carried out in the UK

That 10% UK spend threshold is new under VGEC. The old VGTR required 25% to be spent within the EEA. The new rule is actually easier to meet for most UK-based studios, though the shift from EEA to UK-only means studios relying heavily on European contractors need to watch their cost allocation.

Important: only one company can be the VGDC per game. If multiple companies are involved in development, you need to establish which one is the qualifying development company.

The BFI Cultural Test

Every game claiming VGEC must pass the British Film Institute's cultural test. This sounds intimidating, but most games made by UK studios pass without difficulty. The test scores your game out of 31 points across four categories, and you need at least 16 to qualify:

Cultural content (up to 16 points)

Is the game set in the UK or an undetermined location? Are the characters British or from an undetermined origin? Is the subject matter British or European? Is the dialogue in English? Games set in fictional or fantasy worlds typically score well here, because undetermined settings and characters still earn points.

Cultural contribution (up to 4 points)

Does the game represent creativity, innovation, or British culture?

Cultural hubs (up to 3 points)

Where was the design, programming, art, and audio work carried out? UK-based work scores points.

Cultural practitioners (up to 8 points)

Are key roles (project lead, programmers, designers, artists, writers, composers, audio team) filled by UK or EEA nationals/residents?

If your studio is based in the UK with a mostly UK-based team, you'll likely clear 16 points comfortably. You can apply for an interim certificate during development (valid for three years) and then a final certificate once the game is complete.

What Costs Can You Claim?

VGEC covers core expenditure on the design, production, and testing of the game. This includes:

Programming and engineering - salaries and contractor costs for developers, engine work, tools development, networking code, AI systems
Art and animation - character design, environment art, concept art, 3D modelling, rigging, animation, UI design
Audio - sound design, voice recording, music composition and recording
Game design - level design, systems design, narrative design, balancing
Quality assurance - testing, bug tracking, playtesting
Production management - producer salaries, project management costs directly tied to development
Subcontractor and freelancer costs - with no spending cap (the old VGTR had a £1 million subcontractor limit; VGEC removes this entirely)

What you can't claim:

Concept and pre-greenlight work - anything spent while you're still deciding whether to make the game. Once you commit to production, costs become eligible
Marketing and distribution - trailers, PR, store listings, community management
Post-release maintenance - bug fixes and patches after launch aren't core development
Non-UK expenditure - only costs for work physically carried out in the UK qualify

The key distinction is between speculative work (not eligible) and committed development (eligible). Once your game is greenlit and you're actively designing, building, and testing, those costs count.

VGEC and R&D Tax Credits: Can You Claim Both?

This is where it gets interesting - and where a lot of studios leave money on the table.

If your game involves genuinely innovative technical work - building a new rendering pipeline, developing novel AI pathfinding, creating a custom physics engine, pioneering procedural generation techniques - that work might separately qualify for R&D tax credits, which can be even more generous than VGEC.

However, there's a critical rule: under VGEC, any expenditure that meets the conditions for R&D tax relief is automatically excluded from your VGEC claim, whether or not you actually make an R&D claim. This is a change from the old VGTR rules and it's important to understand.

What this means in practice: you need to carefully separate your costs. The genuinely innovative R&D work (say, building a bespoke engine feature that overcomes a technical uncertainty) gets claimed under R&D relief. The standard game development work (asset creation, level design, QA, standard programming) gets claimed under VGEC. Done properly, this split can significantly increase your total benefit because R&D relief rates can be higher than VGEC.

Getting this allocation wrong can mean either leaving money unclaimed or running into problems with HMRC. This is the area where specialist advice pays for itself many times over.

How to Make a Claim: Step by Step

1. Apply for BFI certification

Start this early - ideally during development, not after. Apply for an interim cultural certificate through the BFI's online portal. The BFI aims to process applications within 28 days. You'll need a final certificate once the game is complete.

2. Track your costs properly

Keep detailed records of all development expenditure, split between UK and non-UK costs, and between core development phases. You'll need to show HMRC a clear breakdown by category. If you're using a Special Purpose Vehicle (a separate company set up for one game), this is simpler. If you're claiming through your main trading company for multiple games, each game is treated as a separate trade and needs its own cost tracking.

3. Submit the Additional Information Form (AIF)

Since April 2024, all creative industry tax relief claims must be accompanied by an AIF submitted to HMRC. This includes the game's name, development start date, expenditure breakdowns, and details of any connected party transactions. The AIF must be submitted before or on the same day as your Corporation Tax return.

4. Include VGEC in your Corporation Tax return

Claim the credit through your CT600 return. From 6 April 2026, you must also include the CT600P Creative Industries supplementary page.

5. Wait for HMRC to process

If HMRC don't raise any queries, claims can be paid out within approximately 40 calendar days. If they do have questions, they'll request further documentation. A well-prepared claim with proper supporting evidence will process much faster.

6. Receive your credit

The credit first offsets your Corporation Tax liability. Any remainder can be used against other tax liabilities or surrendered to group companies. If there's still credit left after all of that - which is common for loss-making studios - HMRC pays you the balance in cash.

Claim Window

You can make, amend, or withdraw a VGEC claim up to two years after the end of the period of account it relates to. So there's time to get it right, but don't sit on it - earlier claims mean earlier cash flow.

Common Questions from Indie Developers

"We're a tiny studio - is it worth the hassle?"

Yes. Even a two-person studio spending £50,000 a year on development could get back over £10,000. The process takes some upfront effort to set up, but once your systems are in place (cost tracking, BFI certification), subsequent claims are much simpler.

"We use freelancers and contractors - does that count?"

Yes, and this is actually better under VGEC than the old system. The £1 million subcontractor cap has been removed, so all qualifying subcontractor and freelancer costs can be claimed, provided the work is carried out in the UK.

"Our game is set in a fantasy world - will it pass the cultural test?"

Almost certainly. Games set in fictional or undetermined locations still score points for cultural content. If your team is UK-based and your development happens in the UK, you'll pick up points across all four categories.

"We haven't been claiming - can we go back?"

You can claim for expenditure within open accounting periods - generally up to two years from the end of the period of account. If you've been developing games without claiming, speak to a specialist as soon as possible to see what you can still recover.

"Does DLC and post-release content count?"

Post-release content that forms part of the original game's development plan can qualify. However, standard maintenance, bug fixes, and patches generally don't. The line can be blurry, so get advice on your specific situation.

What Should You Do Next?

If you're a UK game studio and you're not claiming VGEC, you're leaving money on the table. For most indie developers, the credit is a genuine lifeline - funding that helps bridge the gap between development and revenue.

The process involves specialist knowledge of both BFI certification and HMRC's creative industry tax rules. We connect game studios with qualified advisors who handle this every day, so you can focus on making your game.

Find out if you qualify - it takes two minutes and costs nothing.

This article is for general information only and does not constitute tax advice. Tax relief eligibility depends on individual circumstances. UK Creative Funding is not a tax advisory firm - we connect eligible creative businesses with specialist advisors.