Tax Break for Gaming Companies: Industry boost or too good to be true?
Tax Break for Gaming Companies: Industry boost or too good to be true?
Over the course of the next few months some of the biggest companies involved in gaming will be releasing their latest products to the market. From consoles such as the Xbox One and Playstation 4 to gaming companies releasing their latest edition of big-name titles, Britain is set to go gaming-mad in the run-up to Christmas. However, changes could be made that see that buzz shift to jobs, economic boosts and more British-based games being made. The UK Government has proposed a change to the industry that could see gaming companies given a tax break of 25%, as long as over 80% of the game’s production budget is spent in the UK. But does it all sound too good to be true? Our team of investigators went out to seventeen gaming companies of different sizes, who are all involved in making games for different platforms, and got their thoughts on the proposals.
What is the Government proposal?
The scheme is designed to encourage more British and overseas companies to invest their production budgets in Britain. That includes everything from designing and making the game, to then going on to do testing prior to release. Similar tax relief systems are already in existence in both Canada and France, however, France set their tax break for companies who have a minimum production budget of over £129,000. A recent report by the video games industry trade association Tiga, says that there were 118 more studios and 336 more creative staff in 2012 than there had been in 2011. Tiga also predict that a tax relief will safeguard and generate approximately 4,660 jobs. International interest in the UK’s digital opportunities is growing with industry titans like Google, Twitter, Badoo, Amazon and Microsoft all buying up real estate around London’s East End. So much so, it’s now referred to by many as “The Silicon Roundabout” as an nod to Silicon Valley in the US. The US tech expansion to UK soil is an encouraging sign and a positive advocation of the increasing standard of the UK’s Digital infrastructure. This bodes well for the UK gaming market, which is predicted to be worth £56 billion by 2014.
Plusnet’s Survey into the Effect of the Tax Break on Gaming Companies
To gauge the reaction on the proposal, Plusnet has asked seventeen companies involved in the UK gaming industry for their thoughts anonymously. The responses obtained showed that:
- Over 75% of the respondents admitted that they thought a tax break would encourage more start-up companies in the gaming industry
- 70% of respondents said that such relief would allow them to make changes to their business in one or more ways
- 29% of companies thought that such a break would benefit them greatly whilst only 17% said that a tax break would benefit them very little or not at all
- Scotland is a particularly popular region for gaming with over 47% of companies who took our survey saying they are based there. As an example of this, the famous company Rockstar North, founders of Grand Theft Auto, are based in Edinburgh
- 76% of the companies we surveyed have between 1-10 employees
The fact that so many companies advise that a tax break would enable them to make changes to the way their business works is significant in terms of support for proposals. One respondent commented: “Yes it will [be beneficial], because anything that removes barriers and cost means people will be more willing to try new business and take new opportunities” whilst another said “Gaming start-ups are notoriously risky, and so it is difficult to secure funding, therefore, tax breaks would help small studios to start up and stay open for longer, which would increase chances of success.” But not everyone was in agreement. One company responding to our survey said that they did not think it would be beneficial because they felt it would be aimed towards larger companies and not smaller studios. “No, absolutely not. The qualifying criteria for the proposed games tax relief evidence that it is aimed at large and very large developers and projects with budgets of six, seven and even eight figures. “For small and medium sized developers and all start-ups, the proposed games tax relief will mean they are disadvantaged compared to their larger UK and overseas competitors.”
What can be taken from the results?
A lot of the companies responding to our survey were small studios operating with less than 10 employees in total. Many companies start off small but the ability to grow is very much dependent on the success of games made. A tax break for gaming companies may be beneficial for small gaming companies to invest more into their budget but for companies that are larger and international, it is likely to give them a distinct advantage in that due to higher budgets, the money clawed back will be significantly more beneficial to them than a company operating on a much tighter budget. As such, a proportionate scale based on size from 40% to small companies to 10% for large companies may encourage much more competition and more money to invest in the growth of a company. On the whole, it seems a lot of the organisations responding are spending their time creating and focusing on mobile gaming and applications, with 76% of all respondents stating that they created games for mobile devices, either solely or with other platforms. This is perhaps a nod towards the fact that there is a growing usage of portable devices and mobile technology such as iPads and smartphones and, by contrast to other platforms, mobile games are cheaper to make. Almost half of the respondents (47%) have their Head Office in Scotland and - due to their size - 94% do not have offices outside of the UK. When it comes to business rates, Scotland operates independently from England and Wales and their business rates are lower than both London and the rest of England. For companies that have smaller offices that are looking for reduced overheads, this is quite significant. We also asked if any of the companies had considered moving abroad, with 29% admitting they had, although the majority are happy being based in the UK. Plusnet asked the companies where they would like to set up if they had to build a business in a different country. More than half of the respondents said they would set up in Canada, with the USA, Germany and China also being offered as alternatives.
Future business: Good or Bad?
To shed more light on the companies’ perceived benefits the survey asked how the Government’s proposal will help their future business strategy. Overall, the survey results show that the tax relief proposal is believed to encourage creativity, employment growth and manufacturing. The survey also found that these companies believe tax breaks will encourage start-up investment to go further, reduce the risk of failure and remove barriers which will allow for more innovation. However, whilst a tax break may benefit companies in the short-term, it is difficult to say whether companies are able to continue at the same levels of expenditure if the tax break was removed. There is also a concern that it may not benefit smaller companies as much as it would the larger companies, which would be significant if we are to encourage growth in the technological industry from current small and medium enterprises (SMEs) and also new start-up companies. Despite that, the current perception amongst many of the small companies featured in our survey is that the proposed tax breaks are likely to grow UK contribution to an ever-growing international gaming market. The UK’s investment in digital infrastructure over the last decade, the identification for the need of the tax relief and the wealth of innovative companies such as Rockstar North in the UK is contributing to a growing British market. Hopefully one day the British Silicon Roundabout will be as synonymous with technology companies as its sister, Silicon Valley, in the USA. What do you think about the introduction of a tax break? Would you like to see one introduced? Could it help stimulate an industry and encourage more people to get into creative industries? Tell us your thoughts below. 5 DAYS TO GO! There are just 5 days to go until our first ever Online Gaming Tournament, where the winning team will win £160 in Amazon Vouchers (£40 per team member). Visit our Community Forums for more details on how to sign up! Remember we will also be hosting a Twitter take-over with FUTURLAB and TEAM 17 on Friday and we want your questions! More details on how to send your questions in will be released later on in the week!