John Bercow
Main Page: John Bercow (Speaker - Buckingham)Department Debates - View all John Bercow's debates with the HM Treasury
(14 years ago)
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Mr David Hanson (Delyn) (Lab)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss
New schedule 2—Video Game Production—
1 After section 1216 of CTA 2009, insert—
Part 15A
Video Game Production
Chapter 1
Introduction
Introductory
1216A Overview of Part
‘(1) This Part is about video game production.
(2) Sections 1216B to 1216G contain definitions and other provisions about interpretation that apply for the purposes of this Part. See, in particular, section 1216C which explains how a company comes to be treated as the video game production company in relation to a video game.
(3) Chapter 2 is about the taxation of the activities of a video game production company and includes—
(a) provision for the company’s activities in relation to its video game to be treated as a separate trade, and
(b) provision about the calculation of the profits and losses of that trade.
(4) Chapter 3 is about relief (called “video game tax relief”) which can be given to a video game production company by way of additional deductions to be made in calculating the profits or losses of the company’s separate trade.
(5) Chapter 4 is about the relief which can be given for losses made by a video game production company in its separate trade including provision for certain such losses to be transferred to other separate trades.
(6) Chapter 5 provides—
(a) for relief under Chapters 3 and 4 to be given on a provisional basis, and
(b) for such relief to be withdrawn if it turns out that conditions that must be met for such relief to be given are not actually met.
Interpretation
1216B “Video Game” etc
‘(1) This section applies for the purposes of this Part.
(2) “Video Game” includes a game played by electronically manipulating images produced by a computer program on a display screen.
(3) A video game is completed when it is first in a form in which it can reasonably be regarded as ready for copies of it to be distributed to the general public.
1216C “Video game production company”
‘(1) For the purposes of this Part “video game production company” is to be read in accordance with this section.
(2) There cannot be more than one video game production company in relation to a video game.
(3) A company that (otherwise than in partnership)—
(a) is responsible—
(i) for design, programming and production of the video game, and
(ii) for delivery of the completed video game,
(b) is actively engaged in production planning and decision-making during design and programming, and
(c) directly negotiates, contracts and pays for rights, goods and services in relation to the video game,
is the video game production company in relation to the video game.
(4) If there is more than one company meeting the description in subsection (3), the company that is most directly engaged in the activities referred to in that subsection is the video game production company in relation to the video game.
(5) If there is no company meeting the description in subsection (3), there is no video game production company in relation to the video game.
(6) A company may elect to be regarded as a company which does not meet the description in subsection (3).
(7) The election—
(a) must be made by the company by being included in its company tax return for an accounting period (and may be included in the return originally made or by amendment), and
(b) may be withdrawn by the company only by amending its company tax return for that accounting period.
(8) The election has effect in relation to video games which commence design in that or any subsequent accounting period.
1216D “Video game-making activities” etc
‘(1) In this Part “video game-making activities”, in relation to a video game, means the activities involved in design, programming and production of the video game.
(2) The Treasury may make regulations to—
(a) amend subsection (1),
(b) provide that specified activities are or are not to be regarded as video game-making activities or as video game-making activities of a particular description, and
(c) provide that, in relation to a specified description of video game, references to video game-making activities of a particular description are to be read as references to such activities as may be specified.
“Specified” means specified in the regulations.
1216E “Production expenditure”, “core expenditure” and “limited-budget video game”
‘(1) In this Part, in relation to a video game— “production expenditure” means expenditure on video game-making activities in connection with the video game, and “core expenditure” means the total costs that relate specifically to the producing and developing of the video game up to the point of commercial release.
(2) For the purposes of this Part a “limited-budget video game” is a video game whose core expenditure is £3 million or less.
(3) In determining if a video game is a limited-budget video game, any core expenditure that—
(a) is incurred by a person under or as a result of a transaction entered into directly or indirectly between that person and a connected person, and
(b) might have been expected to have been of a greater amount (“the arm’s length amount”) if the transaction had been between independent persons dealing at arm’s length, is treated as having been of an amount equal to the arm’s length amount.
1216F “UK expenditure” etc
‘(1) In this Part “UK expenditure”, in relation to a video game, means expenditure on goods or services that are used or consumed in the United Kingdom.
(2) Any apportionment of expenditure as between UK expenditure and non-UK expenditure for the purposes of this Part is to be made on a just and reasonable basis.
(3) The Treasury may by regulations amend subsection (1).
1216G “Company tax return”
In this Part “company tax return” has the same meaning as in Schedule 18 to FA 1998 (see paragraph 3(1)).
Chapter 2
Taxation of Activities of Video Game Production Company
Separate video game trade
1216H Activities of video game production company treated as a separate trade
‘(1) This Chapter applies for corporation tax purposes to a company that is the video game production company in relation to a video game.
(2) The company’s activities in relation to the video game are treated as a trade separate from any other activities of the company (including any activities in relation to any other video game).
(3) In this Chapter the separate trade is called “the separate video game trade”.
(4) The company is treated as beginning to carry on the separate video game trade—
(a) when design begins, or
(b) if earlier, when any income from the video game is received by the company.
1216I Calculation of profits or losses of separate video game trade
‘(1) This section applies for the purpose of calculating the profits or losses of the separate video game trade.
(2) For the first period of account the following are brought into account—
(a) as a debit, the costs of the video game incurred (and represented in work done) to date, and
(b) as a credit, the proportion of the estimated total income from the video game treated as earned at the end of that period.
(3) For subsequent periods of account the following are brought into account—
(a) as a debit, the difference between the amount of the costs of the video game incurred (and represented in work done) to date and the corresponding amount for the previous period, and
(b) as a credit, the difference between the proportion of the estimated total income from the video game treated as earned at the end of that period and the corresponding amount for the previous period.
(4) The proportion of the estimated total income treated as earned at the end of a period of account is given by— C / T x I where— C is the total to date of costs incurred (and represented in work done), T is the estimated total cost of the video game, and I is the estimated total income from the video game.
Supplementary
1216J Income from the video game
‘(1) References in this Chapter to income from the video game are to any receipts by the company in connection with the making or exploitation of the video game.
(2) This includes—
(a) receipts from the sale of the video game or rights in it,
(b) royalties or other payments for use of the video game or aspects of it (for example, characters or music),
(c) payments for rights to produce games or other merchandise, and
(d) receipts by the company by way of a profit share agreement.
(3) Receipts that (apart from this subsection) would be regarded as of a capital nature are treated as being of a revenue nature.
1216K Costs of the video game
‘(1) References in this Chapter to the costs of the video game are to expenditure incurred by the company on—
(a) video game-making activities in connection with the video game, or
(b) activities with a view to exploiting the video game.
(2) This is subject to any provision of the Corporation Tax Acts prohibiting the making of a deduction, or restricting the extent to which a deduction is allowed, in calculating the profits of a trade.
(3) Expenditure that (apart from this subsection) would be regarded as of a capital nature only because it is incurred on the creation of an asset (the video game) is treated as being of a revenue nature.
1216L When costs are taken to be incurred
‘(1) For the purposes of this Chapter costs are incurred when they are represented in the state of completion of the work in progress.
(2) Accordingly—
(a) payments in advance of work to be done are ignored until the work has been carried out, and
(b) deferred payments are recognised to the extent that the work is represented in the state of completion.
(3) The costs incurred on the video game are taken to include an amount that has not been paid only if it is the subject of an unconditional obligation to pay.
(4) If an obligation is linked to income being earned from the video game, no amount is to be brought into account in respect of the costs of the obligation unless an appropriate amount of income is or has been brought into account.
1216M Pre-trading expenditure
‘(1) This section applies if, before the company began to carry on the separate video game trade, it incurred expenditure on development of the video game.
(2) The expenditure may be treated as expenditure of the separate video game trade and as if incurred immediately after the company began to carry on that trade.
(3) If expenditure so treated has previously been taken into account for other tax purposes, the company must amend any relevant company tax return accordingly.
(4) Any amendment or assessment necessary to give effect to subsection (3) may be made despite any limitation on the time within which an amendment or assessment may normally be made.
1216N Estimates
Estimates for the purposes of this Chapter must be made as at the balance sheet date for each period of account, on a just and reasonable basis taking into consideration all relevant circumstances.
Chapter 3
Video Game Tax Relief
Introductory
1216O Availability and overview of video game tax relief
‘(1) This Chapter applies for corporation tax purposes to a company that is the video game production company in relation to a video game.
(2) Relief under this Chapter (“video game tax relief”) is available to the company if the conditions specified in the following sections are met in relation to the video game—
(a) section 1216P (intended for commercial release),
(b) section 1216Q (British video game), and
(c) section 1216R (UK expenditure).
(3) Video game tax relief is given by way of additional deductions (see sections 1216S and 1216T).
(4) Section 1216U contains provision about unpaid costs and artificially inflated claims.
(5) In this Chapter “the separate video game trade” means the company’s separate trade in relation to the video game (see section 1216H).
(6) See Schedule 18 to FA 1998 (in particular, Part 9D) for information about the procedure for making claims for video game tax relief.
Conditions of relief
1216P Intended commercial release
‘(1) The video game must be intended for commercial release.
(2) For this purpose—
(a) “commercial release” means distribution to the paying public, and
(b) a video game is not regarded as intended for commercial release unless it is intended that a significant proportion of the earnings from the video game should be obtained by such distribution.
(3) Whether this condition is met is determined for each accounting period of the company during which video game-making activities are carried on in relation to the video game, in accordance with the following rules.
(4) If at the end of an accounting period the video game is intended for commercial release, the condition is treated as having been met throughout that period (subject to subsection (5)(b)).
(5) If at the end of an accounting period the video game is not intended for commercial release, the condition—
(a) is treated as having been not met throughout that period, and
(b) cannot be met in any subsequent accounting period.
This does not affect any entitlement of the company to relief in an earlier accounting period for which the condition was met.
1216Q British video game
‘(1) Subject to subsection (2), a video game is a British video game for the purposes of this Part if it achieves a minimum of 19 points out of a maximum of 37 from the following table, with a minimum of 9 points being obtained in sections A and B:
A | Cultural Content | Number of points |
A1 | The video game is based on locations in Europe (including fictionalised versions of locations in Europe) or on peoples of Europe. | From 0 to 4 points |
A2 | The video game is inspired by or based upon: (i) European underlying material (such as a film, a book or artistic work;or(ii) a sport (or sports) that originated in Europeor(iii) an event (or events) held (or previously held) within Europe;or(iv) any other European subject matter. | From 0 to 4 points |
A3 | The in-video game dialogue and in-video game text is mainly in the English language. | 2 points |
B | Cultural Contribution | |
B1 | The video game is an original video game (as opposed to being a sequel to a previous video game). | 3 points |
B2 | The video game is based on or strongly features a narrative (as opposed to being a purely abstract or non-linear video game). | From 0 to 4 points |
B3 | The video game incorporates any clear technical or creative innovations such as innovations in: (i) gameplay; (ii) graphics; (iii) user interface; (iv) artificial intelligence, audio or physics; or (v) online or multiplayer functionality. | From 0 to 4 points |
B4 | The video game represents or reflects: (i) diverse European culture;or(ii) European heritage;or(iii) European creativity. | From 0 to 4 points |
C | Cultural Hubs | |
C1 | At least 50 per cent. of the production budget in incurred within the UK. | From 0 to 4 points |
C2 | The in-video game text is translated into at least two other official languages of the EEA. | 2 points |
D | Cultural Practitioners | |
D1 | Executive Producer. | 1 point |
D2 | Lead Programmer. | 1 point |
D3 | Lead Artist. | 1 point |
D4 | Scriptwriter. | 1 point |
D5 | Lead Designer. | 1 point |
D6 | Lead music and audio composer. | 1 point |
Total Achievable Points | 37 points |
(2) Notwithstanding the above, a video game is not a British Video Game if it is of a pornographic nature or features extreme violence.
1216R UK expenditure
‘(1) At least 25 per cent. of the core expenditure on the video game incurred must be UK expenditure.
(2) The Treasury may by regulations amend the percentage specified in subsection (1).
Additional deductions
1216S Additional deduction for qualifying expenditure
‘(1) If video game tax relief is available to the company, it may (on making a claim) make an additional deduction in respect of qualifying expenditure on the video game.
(2) The deduction is made in calculating the profit or loss of the separate video game trade.
(3) In this Chapter “qualifying expenditure” means core expenditure on the video game that falls to be taken into account under Chapter 2 in calculating the profit or loss of the separate video game trade for tax purposes.
(4) The Treasury may by regulations—
(a) amend subsection (3), and
(b) provide that expenditure of a specified description is or is not to be regarded as qualifying expenditure.
1216T Amount of additional deduction
‘(1) For the first period of account during which the separate video game trade is carried on, the amount of the additional deduction is given by— E x R where— E is—
(a) so much of the qualifying expenditure as is UK expenditure, or
(b) if less, 80 per cent. of the total amount of qualifying expenditure, and
R is the rate of enhancement (see subsection (3)).
(2) For any period of account after the first, the amount of the additional deduction is given by — (E x R) - P where—
E is—
(a) so much of the qualifying expenditure incurred to date as is UK expenditure, or
(b) if less, 80 per cent. of the total amount of qualifying expenditure incurred to date,
R is the rate of enhancement (see subsection (3)), and P is the total amount of the additional deductions given for previous periods.
(3) The rate of enhancement is—
(a) for a limited-budget video game, 100, and
(b) for any other video game, 80 per cent.
(4) The Treasury may by regulations amend the percentage specified in subsection (1) or (2).
Miscellaneous
1216U No account to be taken of amount if unpaid
‘(1) In determining for the purposes of this Chapter the amount of costs incurred on a video game at the end of a period of account, ignore any amount that has not been paid 4 months after the end of that period.
(2) This is without prejudice to the operation of section 1216L.
1216V Artificially inflated claims for additional deduction or video game tax credit
‘(1) So far as a transaction is attributable to arrangements entered into wholly or mainly for a disqualifying purpose, it is to be ignored in determining for any period any additional deduction which a company may make under this Chapter.
(2) Arrangements are entered into wholly or mainly for a disqualifying purpose if their main object, or one of their main objects, is to enable a company to obtain an additional deduction under this Chapter to which it would not otherwise be entitled or of a greater amount than that to which it would otherwise be entitled.
(3) “Arrangements” includes any scheme, agreements or understanding, whether or not legally enforceable.
Chapter 4
Video Game Losses
1216W Application of sections 1216X and 1216Y
‘(1) Sections 1216X and 1216Y apply to a company that is the video game production company in relation to a video game.
(2) In those sections— “the completion period” means the accounting period of the company—
(a) in which the video game is completed, or
(b) if the company does not complete the video game, in which it abandons video game-making activities in relation to the video game,
“loss relief” includes any means by which a loss might be used to reduce the amount in respect of which the company, or any other person, is chargeable to tax,
“pre-completion period” means an accounting period of the company before the completion period, and
“the separate video game trade” means the company’s separate trade in relation to the video game (see section 1216H).
1216X Restriction on use of losses while video game in production
‘(1) This section applies if in a pre-completion period a loss is made in the separate video game trade.
(2) The loss is not available for loss relief except to the extent that it may be carried forward under section 45 of CTA 2010 to be set against profits of the separate video game trade in a subsequent period.
1216Y Use of losses in later periods
‘(1) This section applies to the following accounting periods of the company (“relevant later periods”)—
(a) the completion period, and
(b) any subsequent accounting period during which the separate video game trade continues.
(2) Subsection (3) applies if a loss made in the separate video game trade is carried forward under section 45 of CTA 2010 from a pre-completion period to a relevant later period.
(3) So much (if any) of the loss as is not attributable to video game tax relief (see subsection (6)) may be treated for the purposes of loss relief as if it were a loss made in the period to which it is carried forward.
(4) Subsection (5) applies if in a relevant later period a loss is made in the separate video game trade.
(5) The amount of the loss that may be—
(a) set against other profits of the same or an earlier period under section 37 of CTA 2010, or
(b) surrendered as group relief under Part 5 of that Act,
is restricted to the amount (if any) that is not attributable to video game tax relief (see subsection (6)).
(6) The amount of a loss in any period that is attributable to video game tax relief is calculated by deducting from the total amount of the loss the amount there would have been if there had been no additional deduction under Chapter 3 in that or any earlier period.
(7) This section does not apply to a loss to the extent that it is carried forward or surrendered under section 1216Z.
1216Z Terminal losses
‘(1) This section applies if—
(a) a company (“company A”) is the video game production company in relation to a qualifying video game,
(b) company A ceases to carry on its separate trade in relation to that video game (“trade X”) (see section 1216H), and
(c) if company A had not ceased to carry on trade X, it could have carried forward an amount under section 45 of CTA 2010 to be set against profits of trade X in a later period (“the terminal loss”).
(2) If on cessation of trade X company A—
(a) is the video game production company in relation to another qualifying video game, and
(b) is carrying on its separate trade in relation to that video game (“trade Y”), it may (on making a claim) make an election under subsection (3).
(3) The election is to have the terminal loss (or part of it) treated as if it were a loss brought forward under section 45 of CTA 2010 to be set against the profits of trade Y of the first accounting period beginning after the cessation and so on.
(4) Subsection (5) applies if on cessation of trade X—
(a) there is another company (“company B”) that is the video game production company in relation to a qualifying video game,
(b) company B is carrying on its separate trade in relation to that video game (“trade Z”), and
(c) company B is in the same group as company A for the purposes of Part 5 of CTA 2010 (group relief).
(5) Company A may surrender the terminal loss (or a part of it) to company B.
(6) On the making of a claim by company B the amount surrendered is treated as if it were a loss brought forward by company B under section 45 of CTA 2010 to be set against the profits of trade Z of the first accounting period beginning after the cessation and so on.
(7) The Treasury may, in relation to the surrender of a loss under subsection (5) and the resulting claim under subsection (6), make provision by regulations corresponding, subject to such adaptations or other modifications as appear to them to be appropriate, to that made by Part 8 of Schedule 18 to FA 1998 (company tax returns: claims for group relief).
(8) “Qualifying video game” means a video game in relation to which the conditions for video game tax relief are met (see section 1216O(2)).
Chapter 5
Provisional Entitlement to Relief
1216AA Introduction
‘(1) In this Chapter—
“the company” means the video game production company in relation to a video game,
“the completion period” means the accounting period of the company—
(a) in which the video game is completed, or
(b) if the company does not complete the video game, in which it abandons video game-making activities in relation to it,
“interim accounting period” means any earlier accounting period of the company during which video game-making activities are carried on in relation to the video game,
“the separate video game trade” means the company’s separate trade in relation to the video game (see section 1216H), and
“special video game relief” means—
(a) video game tax relief, or
(b) relief under section 1216Z (transfer of terminal losses from one qualifying video game to another).
(2) The company’s company tax return for the completion period must state that the video game has been completed or that the company has abandoned video game-making activities in relation to it (as the case may be).
1216AB The UK expenditure condition
‘(1) The company is not entitled to special video game relief for an interim accounting period unless—
(a) its company tax return for the period states the amount of planned core expenditure on the video game that is UK expenditure, and
(b) that amount is such as to indicate that the condition in section 1216R (the UK expenditure condition) will be met on completion of the video game.
If those requirements are met, the company is provisionally treated in relation to that period as if that condition was met.
(2) If such a statement is made but it subsequently appears that the condition will not be met on completion of the video game, the company—
(a) is not entitled to special video game relief for any period for which its entitlement depended on such a statement, and
(b) must amend accordingly its company tax return for any such period.
(3) When the video game is completed or the company abandons video game-making activities in relation to it (as the case may be), the company’s company tax return for the completion period must be accompanied by a final statement of the amount of the core expenditure on the video game that is UK expenditure.
(4) If that statement shows that the condition in section 1216R is not met, the company—
(a) is not entitled to special video game relief for any period, and
(b) must amend accordingly its company tax return for any period for which such relief was claimed.
1216AC Video game tax relief on basis that video game is limited-budget video game
‘(1) The company is not entitled to video game tax relief for an interim accounting period on the basis that the video game is a limited-budget video game unless—
(a) its company tax return for the period states the amount of planned core expenditure on the video game, and
(b) that amount is such as to indicate that the condition in section 1216E(2) (definition of “limited-budget video game”) will be met on completion of the video game.
In that case, the video game is provisionally treated in relation to that period as if that condition was met.
(2) If it subsequently appears that the condition will not be met on completion of the video game, the company—
(a) is not entitled to video game tax relief for any period on the basis that the video game is a limited-budget video game, and
(b) must amend accordingly its company tax return for any such period for which such relief has been claimed on that basis.
(3) When the video game is completed or the company abandons video game-making activities in relation to it (as the case may be), the company’s company tax return for the completion period must be accompanied by a final statement of the core expenditure on the video game.
(4) Subsection (5) applies if that statement shows—
(a) that the video game is not a limited-budget video game, or (as the case may be)
(b) that, having regard to the proportion of work on the video game that was completed, the video game would not have been a limited-budget video game had it been completed.
(5) The company—
(a) is not entitled to video game tax relief for any period on the basis that the video game is a limited-budget video game, and
(b) must amend accordingly its company tax return for any period for which such relief was claimed on that basis.
1216AD Time limit for amendments and assessments
Any amendment or assessment necessary to give effect to the provisions of this Chapter may be made despite any limitation on the time within which an amendment or assessment may normally be made.”.
2 In Part 9D of Schedule 18 to the Finance Act 1998, references to film should also include references to video game.’.
Mr Hanson
As the House will be aware, my hon. Friend the Member for Wallasey (Ms Eagle) referred on Second Reading to the fact that we want to bring forward a provision on tax relief in order to help to support the video games industry. Although, undoubtedly, new clause 1 would not do that in every respect, I want to put it before the House, so that we can have an in-principle debate about video game industry tax relief. The new clause provides an opportunity for the House to consider enhanced relief based on UK expenditure on video game production.
The new clause suggests that we might consider qualified tax relief for the video game industry, and that it should be based on strict criteria: the video game must be for commercial release; it must be a British video game, assessed on the basis of a points system; and it must meet a 25% UK expenditure threshold, whereby 25% of the total expenditure on the production and development of the video game is UK expenditure on goods or services. We intended to look at that issue, and I would have tabled a much more detailed new clause, but the advice was that we could not. I hope that I have, however, tabled sufficient proposed changes for the Government to consider bringing back at a future date, or supporting the principle of, tax relief for this vital sector in the United Kingdom.
The video games industry is a real success story for British industry, and we look to support it in detail. As I am sure that the Minister is aware, research from TIGA, which represents the gaming industry, shows that over a five-year period games tax relief could create or save about 3,500 graduate-level jobs, secure £450 million-plus in new and saved development expenditure, and generate about £415 million in new and saved tax relief. I hope that it would do so in a way that ensures that the cost to the Treasury amounts to about £192 million over five years, which would be more than paid for by the jobs and investment, and encouragement to the industry, that that would develop in due course.
My hon. Friends the Members for Dundee West (Jim McGovern), for Liverpool, Wavertree (Luciana Berger) and for West Bromwich East (Mr Watson) have been very vocal in supporting such a tax relief. I hope that the Minister will consider it in principle, so that we can begin to develop a cross-party consensus in due course.