tax reliefs

‘Our tax system is too complicated’ concludes Treasury Committee report on tax reliefs

26th July 2023 by Sarah Walton

The Treasury Select Committee (TSC) today published a report¹ about the complicated world of tax reliefs. Last year TaxWatch provided written evidence to the Committee on this enquiry and in December last year, TaxWatch’s then acting director, Alex Dunnagan, gave oral evidence.

The report calls on the Government to regularly review tax reliefs and removal of those that no longer fit their policy objectives, cost significantly more than expected or are vulnerable to abuse.

It focuses on concerns about the number and complexity of tax reliefs, along with lack of scrutiny of their cost and effectiveness. They recognise that part of the problem arises due to governments introducing new reliefs, often following lobbying from interested parties, which then prove difficult to remove even if there are known problems with their operation. The scale of this issue is demonstrated by the fact that 105 of the 339 identified non-structural reliefs (i.e. those designed to promote certain behaviour) were estimated to cost £195bn in 2021-22. This equates to 72% of the health and social care budget (£272bn) in the same year.

Tax reliefs were also identified as creating opportunities for abuse, most clearly highlighted by evidence around R&D tax reliefs. Recent data (published since the TSC report was compiled) has suggested that levels of fraud and error in these reliefs are, in fact, much greater than previously estimated. Alex pointed out that, in addition to poor tax policy design issues, HMRC did not have sufficient resources to police the potential abuse of reliefs. In particular he referred to issues dealing with tens of thousands of R&D relief claims submitted every year.

The report refers to the closure of the Office for Tax Simplification (OTS) and the difference between their remit, which was to review the existing tax system, and a new focus by the Treasury and HMRC on tax policy design, which will only consider new tax policies.

The TSC call for a number of actions, including designating non-structural reliefs as public spending so they can be properly scrutinised as such. They also recommend five year reviews of each relief with a view to removing those that no longer serve policy requirements. While we support all of the recommendations, the volume and nature of the work involved would require significant resources and political commitment. Bearing in mind the closure of the OTS, it seems likely that this is not going to be top of anybody’s priority list.

TaxWatch have identified that it is not just in the area of reliefs where old tax policies linger without review of their purpose or effectiveness. We will shortly be publishing an analysis of issues around property taxation that we believe should be substantially reformed.

1Tax Reliefs, House of Commons Treasury Committee, 18 July 2023, https://committees.parliament.uk/publications/41067/documents/200054/default/

Another record year for Rockstar Games Tax Relief (RGTR)

9th May 2022 by Alex Dunnagan

Rockstar Games has revealed that they claimed £68.4m in Video Games Tax Relief (VGTR) in 2020-2021, equivalent to 38% of the entire amount of VGTR paid out that year. The amount Rockstar are claiming is rising every year, taking the total the US-owned company has claimed to a staggering £205m.

Video Games Tax Relief was estimated to cost just £35m a year when it was introduced. ^[1]“It is estimated that this generous new corporation tax relief will provide around £35 million of support per year to the sector.”, Video games companies to begin claiming tax relief, HM … Continue reading We now have one company claiming almost double that in a single year.

The 2020-2021 accounts of Rockstar Games UK Limited (previously Rockstar North) were published last week, just three months late, after the 2019-2020 accounts were published over a year late in January.

	2016	2017	2018	2019	2020	2021	Total
Operating Profit	£3,515,268	£3,745,345	£8,242,790	£8,715,917	£9,519,819	£9,399,572	£43,138,711
Tax on profit	£33,416,310	£13,121,157	£26,915,315	£40,035,440	£65,155,510	£64,359,515	£243,003,247
VGTR	£11,278,530	£11,918,339	£19,116,178	£37,607,824	£56,684,144	£68,376,369	£204,981,384
Profit after tax	£36,931,578	£16,884,972	£35,216,097	£48,773,567	£74,783,921	£73,831,443	£286,421,578
Dividends	£0	£12,500,000	£15,000,000	£0	£40,000,000	£0	£67,500,000

While the Edinburgh-based company is responsible for developing some of the most profitable games of all time, its corporate structure ensures that it sees almost none of that profit returned to the UK. ^[2]The corporate structure of Rockstar is explained in our report Gaming The Tax System which we published in April 2019, http://13.40.187.124/reports/gaming-the-tax-system/

Not content with hundreds of millions of pounds in VGTR, Rockstar’s latest accounts reveal the extent of Research and Development Expenditure Credits the company is claiming – £304k in 2020-2021, £1.46m in 2019-2020, and £970k in 2018-2019, for a total of £2.73m over the past the three years. The previous years show how much expenditure they classed as R&D, but no figures are given for the actual amount of relief claimed.

Rockstar’s latest figures provide just another example of how Video Games Tax Relief has gotten out of hand, becoming a large corporates subsidy worth hundreds of millions of pounds a year.

HMRC’s creative industry statistics commentary for the 2020-2021 year states:

In the year ending March 2021, the majority of claims tend to be for smaller amounts, with 47% of all claims being for £50,000 or less; however, these claims are only responsible for 2% of the total amount paid out. Claims over £500,000 account for 87% of the total amount paid out. This proportion has increased from the previous year.

In order to receive VGTR, a game has to be accredited as “Culturally British” by the BFI. Since the introduction of the relief in 2014 through to 31 March 2021, 1,239 games received this certification. ^[3]This number has since increased, however, we are only looking at Creative Industries data up until the end of March 2021 as this is the most recent reporting period for Rockstar. Data available at … Continue reading ^[4]For more on this ‘cultural’ accreditation, and how a game set in the US about gangland crime can be classed as ‘culturally British’, see – Swedish goats, Japanese hedgehogs and Batman: the … Continue reading Of these, only two were published by Rockstar, with Grand Theft Auto V receiving the accreditation in 2015, and Red Dead Redemption 2 in 2019.

A total of £624m for all VGTR claims had been paid by March 2021, with £205m of it going to Rockstar. The result is that Rockstar has managed to claim a third of the total amount paid out whilst only being responsible for 0.16% of the games receiving the relief.

It’s worth bearing in mind that when this relief was introduced, the intent was to provide targeted support for games that were “culturally British”, and to help smaller publishers create games that might not be economically viable without the relief.

The staggering amounts paid out to Rockstar Games was raised by Lord Prem Sikka in February of this year, speaking during a debate on the Finance (No. 2) Bill, he said:

“According to its accounts, it has claimed £136.6 million in total in tax relief over the years. It has paid no corporation tax at all but has paid £67.5 million in dividends. Where exactly did those dividends come from? They came from picking the pockets of the British taxpayer. There is no other explanation for this. It does not seem to me that these kinds of tax reliefs are monitored. No evidence is provided by any government department to show what exactly the benefit to the UK economy is of this American company receiving all these tax reliefs.” ^[5]The figures used by Lord Sikka are to 31 March 2020. The full text from the debate is available on Hansard here; … Continue reading

Amount of video games tax relief paid (£ million, receipts basis) 2014-15 to 2020-21

The amount of relief paid out to video game developers in 2020-2021 increased by 48% compared with the previous year.

Despite the odd dissenting voice, there is very little scrutiny of this corporate subsidy that is spiralling out of control. To the best of our knowledge, the government has no plans to review this relief. Expect the next batch of statistics to reveal even more money paid out, and for Rockstar’s 2022 accounts to reveal yet another increase in the amount they are claiming.

References[+]

References
↑1	“It is estimated that this generous new corporation tax relief will provide around £35 million of support per year to the sector.”, Video games companies to begin claiming tax relief, HM Treasury, 19 August 2014, https://www.gov.uk/government/news/video-games-companies-to-begin-claiming-tax-relief
↑2	The corporate structure of Rockstar is explained in our report Gaming The Tax System which we published in April 2019, http://13.40.187.124/reports/gaming-the-tax-system/
↑3	This number has since increased, however, we are only looking at Creative Industries data up until the end of March 2021 as this is the most recent reporting period for Rockstar. Data available at – Video Games Certified as British through the cultural test for video games, BFI, https://www.bfi.org.uk/apply-british-certification-tax-relief/cultural-test-video-games
↑4	For more on this ‘cultural’ accreditation, and how a game set in the US about gangland crime can be classed as ‘culturally British’, see – Swedish goats, Japanese hedgehogs and Batman: the £324 million tax bung to the ‘culturally British’ gaming industry, TaxWatch, 20 November 2019, http://13.40.187.124/cultural_test_tax_relief/
↑5	The figures used by Lord Sikka are to 31 March 2020. The full text from the debate is available on Hansard here; https://hansard.parliament.uk/Lords/2022-02-22/debates/03EF4CEF-04DE-4374-BE48-BADAF2F06D4C/Finance(No2)

Video Games Tax Relief – 2021 Update

14th October 2021 by Alex Dunnagan

Key facts and figures:

£180m paid out in VGTR last year

48% increase in VGTR on the previous year

55 claims for over £500,000 represent 87% of the total value of payments

Video Games Tax Relief (VGTR), a form of subsidy to the UK videogames industry, has seen a 48% increase in the past year. Originally forecast to cost £35m a year, VGTR cost £180m in the 12 months to March 2021.

The reason given for the increase is “large payments for a small number of very high-budget games and underlying growth in the value of claims1”. The intent of the scheme is to promote British culture, and to foster innovation amongst small independent games developers through subsidies. The reality however is that this scheme is increasingly being captured by large, successful, multinationals.

In 2020-2021, 55 claims of more than £500,000 equated to 16% of all claims made. These claims were worth £156m, or 87% of the total amount paid out – again an increase from last year, where claims over half a million were worth 80% of the total.

While almost half of these claims were for under £50,000, these claims are only responsible for around 2% of the total amount paid out.

It would be unfair to say that the claims paid to multinationals has a negative effect on independent, British SMEs, as it appears that the pot of money available is effectively limitless, with costs increasing year on year.

Figure 1: Amount of video games tax relief paid (£ million, receipts basis) 2014-15 to 2020-21

In order to access VGTR games must pass a test and be certified as ‘Culturally British’ by the British Film Institute (BFI). Previous TaxWatch research has demonstrated how the ‘cultural test’ administered by the BFI is meaningless, as games are able to gain subsidies regardless of the subject matter, and even if they are produced overseas.2

The Guardian revealed in 2019 how four large multinationals – WarnerMedia, Sony, Sega, and Rockstar – had claimed close to half of all VGTR.3 In the past we have analysed the accounts of videogame multinationals, finding that regardless of whether or not they turn a pre-tax profit, the companies paid no corporation tax.4 VGTR is set up in a way whereby the scheme is almost bound to ensure that the UK games industry will not pay corporation tax.

Rockstar North, a UK based and American owned videogames developer responsible for the Grand Theft Auto Series, has in previous years been the largest beneficiary of VGTR. Their latest accounts, dated January 2020, revealed that the company claimed £37.6m in Video Games Tax Relief that year, taking its total to £80m since the scheme was introduced. Of the 1,110 VGTR claims made up until that point, Rockstar accounted for a quarter of all the relief, despite only making two games that qualify as ‘culturally British’.5

Companies House shows that Rockstar North’s accounts are over six months overdue, so we are unable to comment on how much money the American owned company has received in the most recent financial year.

Figure 2: Rockstar North accounts showing as overdue on Companies House. Image taken 13 October 2021.

So what?

The cost of this tax relief is increasing year on year, with just shy of 90% of the money going to games claiming over half a million. We have seen in the past how games such as Grand Theft Auto have claimed tens of millions.

In establishing the relief, the UK argued to the European Commission that British games were in decline, and that “culturally significant games may have production costs equal to global games but a significantly smaller market”.6 Seven years from the introduction of VGTR, questions need to be asked as to whether this is achieving its initial aim, creating culturally significant games and helping British developers, or is it a scheme gone awry, with hundreds of millions in taxpayer cash subsidising successful multinational enterprises?

1 The “growth in the value of claims” is likely regarding the fact that a company has two years to make or rectify a claim once a project is finished.

2Swedish goats, Japanese hedgehogs and Batman: the £324 million tax bung to the ‘culturally British’ gaming industry, TaxWatch, 18 November 2019, http://13.40.187.124/cultural_test_tax_relief/

3Revealed: global video games giants avoiding millions in UK tax, The Guardian, 02 October 2019, https://www.theguardian.com/games/2019/oct/02/revealed-global-video-games-giants-avoiding-millions-in-uk-tax-sony-sega

4Global Video Games Giants: Playing the system or paying their fair share?, TaxWatch, 20 November 2019, http://13.40.187.124/video_games_giants_tax_report/

5Rockstar takes the pot, TaxWatch, 19 January 2020, http://13.40.187.124/rockstar_2019_tax_relief/

6Commission Decision of 27.03.2015 on the state aid scheme SA.3619 (2013/C) (ex 2013/N) which the United Kingdom is planning to implement for video games, European Commission, 27 March 2014, https://ec.europa.eu/competition/state_aid/cases/248371/248371_1557990_171_2.pdf

Photo by Sigmund on Unsplash

tax reliefs

‘Our tax system is too complicated’ concludes Treasury Committee report on tax reliefs

Another record year for Rockstar Games Tax Relief (RGTR)

Video Games Tax Relief – 2021 Update

Key facts and figures:

£180m paid out in VGTR last year

48% increase in VGTR on the previous year

55 claims for over £500,000 represent 87% of the total value of payments

So what?