Recoup the cost of games development in the UK

[princec]

http://news.bbc.co.uk/1/hi/technology/4202354.stm

Cas :)

[Indiepath.T]

i've fired off an urgent letter to my "very expensive" accounting asking him to advise me as to why this was not mentioned to me before.

[digriz]

TIGA - R&D Tax Info (http://www.tiga.org/politics/taxcredits) - Information

A company i worked for last year did this and got a substantial amount of money back. There was a guy that helped, he'd set up a company that does the bulk of the tricky stuff. His name is Fred Gill. Unfortunately, i can't find a link to his company website regarding this. I'm not even sure he still does it. I think that way it works with him is that he gets a percentage of the money successfully claimed back.

[Indiepath.T]

Basically everything I have spent over the past 12 months was on r&D, looks like my accountant is about to get a rocket up his A*se!

[MrCranky]

Sounds great - everyone should be applying for the R&D tax breaks. There are extensive rules over what counts, but in a hi-tech business, especially small ones, you can claim most of your software cost back.

One point, and it isn't mentioned in the article - I'm only aware of it because I looked into it for my own company - money you're entitled to can only be reimbursed as a discount/refund on any corporation tax you pay (or PAYE/NIC if your business doesn't make any profit). So if you don't pay much/any corporation tax, then you don't get any money back. So its not like you can say 'My time is worth 30K a year, I've spent 15K on work which qualifies for R&D tax credits, please give me 15K in cash'. The TIGA link spells it out in full much better.

However, if you pay a significant amount of tax directly attributable to your work, apply for the tax credits - you'll most likely get it for any risky work you've done. You won't be able to claim if you're churning versions with art changes, but any new work you do is most likely eligible!

[Indiepath.T]

What costs qualify for the R&D tax credit

Companies can claim R&D Tax Credits for their revenue expenditure on :
employing staff directly and actively engaged in carrying out R&D
paying a staff provider for staff provided to the company who are directly and actively engaged in carrying out R&D,
consumable or transformable materials used directly in carrying out R&D (broadly, physical materials which are consumed in the R&D), and
power, water, fuel and computer software used directly in carrying out R&D.
There are special rules regarding expenditure on sub-contracted R&D which differ between the SME and large company schemes. And there are rules which mean that in some cases projects which benefit from a subsidy or grant may have the amount of qualifying expenditure reduced.

How much can a company claim?

Claims can only be made in respect of the qualifying expenditure detailed above. Claims are made by reference to a company’s accounting period. There must be qualifying expenditure of at least £10,000 on R&D in the accounting period in order for a claim to be made. There is no upper limit on the amount of the claim.

The R&D tax credit works by allowing companies to deduct 150% (under the SME scheme) or 125% (under the large company scheme) of qualifying expenditure on R&D activities when calculating their profit for tax purposes.

SMEs may be able to claim payable tax credits in cash from the Inland Revenue if they have losses in the accounting period. The payable tax credit could amount to £24 for every £100 of actual R&D expenditure, but the enhanced relief must be surrendered in order to receive this payment.

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One point, and it isn't mentioned in the article - I'm only aware of it because I looked into it for my own company - money you're entitled to can only be reimbursed as a discount/refund on any corporation tax you pay (or PAYE/NIC if your business doesn't make any profit). So if you don't pay much/any corporation tax, then you don't get any money back.

I don't think that statement is correct, you are saying that this is only available on "any corporation tax you pay". The Tax document clearly states that "The R&D tax credit works by allowing companies to deduct 150% (under the SME scheme) or 125% (under the large company scheme) of qualifying expenditure on R&D activities when calculating their profit for tax purposes." - The payment you are due is not relative to your profitability is it relative to you R&D expenditure.

[MrCranky]

Probably my mistake (I'm certainly no accountant).

From what I read from that going over it again, its just that I misphrased it - the money claimed is taken off before tax is calculated, rather than being a refund of tax paid.

E.g. a company that makes has a turnover of 100K, makes 15K profit, and spends 20K on qualifying R&D, can claim a loss of 5K and thus pay no corporation tax at all (because their profits are less than the claimable amount).

As opposed to the way I thought about it previously, which would be that the 20K is discountable against the tax paid; so if the corporation tax bill on 15K profit was say 3K (don't know if it would be, just a rough figure), the 20K would be counted against that figure instead. Either way, the company pays no corporation tax.

Looks like there are other ways of getting at it though which are worth investigating - namely being able to claim back PAYE/NIC for any staff costs on R&D time, or more interestingly this bit: SMEs may be able to claim payable tax credits in cash from the Inland Revenue if they have losses in the accounting period. The payable tax credit could amount to £24 for every £100 of actual R&D expenditure, but the enhanced relief must be surrendered in order to receive this payment. which sounds to me like companies that wouldn't get any benefit out of corporation tax discounts, can still get a chunk of cash back for any time spent on R&D.

[Indiepath.T]

Yeah it's great, no tax and money back.... Whhoooaaa get the beers out.

[MrCranky]

Great! You're paying. End of next tax year at least ;)

[Adrian Cummings]

All seems fine but back to reality for a moment... you all seem to be talking about figures that are out of most standard indies reach on here :rolleyes:

[MrCranky]

Don't be put off by the large turnover/tax numbers I was quoting, they were just for ease of example - anything you have to pay tax is relevant, and that kicks in way lower.

But, I think, people doing games in their spare time actually have to be paying themselves (and thus paying tax) to get anything back. However, looking at it more closely from what Indiepath reposted, it seems there are cash options for small businesses that are worth investigating.

From the minimum threshold for a claim (10K), and assuming you're going for the lesser '24 pounds out of 100' claim (the one that gets you cash in hand rather than money off tax); you would get 2400 back. So anyone with a company, who can demonstratably prove that the company spent 10K on wages for R&D time, gets 2400 back.

I think the problem is, I'm too used to the way companies work. I'm essentially self-employed, and for me to get wages, I have to earn the company money, and then get the company to pay me wages (on which I pay tax/NI). So my time is a cost to the company, and thus qualifies for an R&D credit.

Someone coding in their spare time and simply collecting money from sales into their personal, I don't think would qualify, as there is no cost to the company, and the tax paid would go through whatever main job they had (assuming its declared at the end of the year in some kind of self-assessment).

So its not quite 'back to reality' - its just that its not free money for games developers. You have to put quite a bit into the system before they start giving you money back out.

[princec]

There's an awkward calculation that needs to be made in terms of the tax breaks you can get taking a dividend instead of salary as well; dividends won't count as R&D expenditure - but they are free of NI contribs which is a huge saving. Furthermore there are other tax breaks you might be taking advantage of instead which are more worthwhile - for example I just done got me a brand new pickup truck because I'll be claiming the VAT back off it (as I'll be VAT registered soon) and then a further 90% of its value over the next 3 years and then there's a final tax fiddle which should mean I got a brand new car for free every 3 years... might prove more compelling than a birdseed handout against R&D.

Cas :)

[alfie]

There's an awkward calculation that needs to be made in terms of the tax breaks you can get taking a dividend instead of salary as well; dividends won't count as R&D expenditure - but they are free of NI contribs which is a huge saving. Furthermore there are other tax breaks you might be taking advantage of instead which are more worthwhile - for example I just done got me a brand new pickup truck because I'll be claiming the VAT back off it (as I'll be VAT registered soon) and then a further 90% of its value over the next 3 years and then there's a final tax fiddle which should mean I got a brand new car for free every 3 years... might prove more compelling than a birdseed handout against R&D.

Cas :)

The thing is with dividends is that they come out of company Profits and they are not a business expense. So, if you have some R&D then that is set off against Profits.

Cas, bear in mind with the truck that you will have to pay so much tax per year if it's not 100% used for business, as it's classed as abenefit and you will pay through your PAYE.

[princec]

But of course, the truck is used 100% for business :) Transporting computer hardware around, and the like. Heh. Don't worry, got this all sewn up.

Cas :)

[Grey Alien]

Sorry to drag up this old thread, but has anyone successfully applied for this and been awarded tax credits? If so, I was wondering how you worded your application/form etc because they key thing with all this is that you have to show an advancement in science or technology and it could be hard proving your game has done this (espeically if it's a clone) ...

[princec]

Well, we developed the Lightweight Java Game Library (http://lwjgl.org) while we were doing so, so probably no problem for us... unfortunately can't be bothered to deal with the beaurocracy to get at the cash.

Cas :)

[Grey Alien]

hmm it could be a lot of cash for not much beaurocracy, for example £1000 for every £10000 salary pais is pretty good.