“Government Must Create Conditions For Innovation To Flourish”

November 4, 2010

TIGA, the trade association representing the UK computer games industry, today proposed that the Government should improve the existing R&D tax credit scheme to help create the right conditions for innovation to flourish and to strengthen the economic recovery. TIGA made the proposals in a research paper jointly developed with Grant Thornton, entitled Enhancing R&D Tax Credits. 

Dr Richard Wilson, CEO of TIGA, said:

“If we want to strengthen both UK industry and the economic recovery then we must foster an environment for innovation to flourish. We can help create this environment by encouraging investment in R&D. The UK currently invests a lower proportion of GDP in R&D in comparison to G7 countries such as the USA, France, Germany and Japan.<1>At the same time, business investment in R&D in the UK is relatively low compared to other G7 countries.<2> Currently the UK devotes only 1.8 per cent of GDP to R&D.

“The UK computer games industry is an R&D intensive sector using cutting edge technology to create games for a global market. Many TIGA members do use the existing R&D tax credit system.<3>However they tell us that the current system is too narrow in scope and the claims process too complicated. We would like to see the R&D tax credit system work more effectively and efficiently for the UK economy.

“Most games development companies in the UK are small to medium sized and these firms in particular need greater assistance. Under our recommendations the existing R&D tax credit for large firms should be retained. With respect to the R&D tax credit for small firms, the categories of qualifying expenditure should be widened, the level of relief raised, the value of the relief for loss making companies increased, and the claim process simplified.

“TIGA is committed to making the UK the best place in the world to do games business. We will continue make the case for tax reforms, including improvements to the R&D tax credit system and the introduction of Games Tax Relief. We believe these reforms would benefit not only the games industry but also the wider UK economy.”

Niki Dixon, Tax Partner and Head of Technology, at the chartered accountancy firm Grant Thornton played a key role in developing the report. She said:

“The Department of Business, Innovation and Skills will shortly be consulting on a reform of the R&D tax credits. This provides an excellent opportunity to improve the existing system. While the existing R&D tax credit regime helps some UK games businesses, it is restrictive. This is a global market and more generous tax incentives in other locations are already drawing business away from the UK.  If the UK games industry is to compete successfully and if the UK is to support high technology businesses, then the UK Government must recognise the importance of well designed tax incentives in attracting and retaining business.”

Jason Kingsley, TIGA Chairman and CEO and Creative Director of Rebellion, said:

“The UK video games industry is not only R&D intensive, it also employs highly skilled people in an export industry of the future. A typical UK developer generates 62 per cent of their turnover from the export of video games. If the UK Coalition Government wants the video games industry to fulfil its export potential then it must introduce tax reforms including Games Tax Relief and TIGA’s enhanced R&D proposals.”

Mark Gerhard, TIGA board member and CEO of Jagex Games Studio, said:

“The TIGA proposals would, if enacted, help businesses, promote more innovation and enhance the games industry’s competitive edge. I urge all political parties to support these proposals.”

For a full copy of‘ Enhancing R&D Tax Credits’ email info@tiga.org.

Ends

Notes to editors:

About R&D Tax Credits:

There is currently an SME R&D scheme and a large company R&D scheme. In 2008-9, there were 6,600 R&D claims by SMEs. 6,450 SME companies benefited from the scheme at a cost to the Treasury of£260 million. In 2008-09, there were 2,190 R&D claims by large companies. 2,150 large companies benefited from the large company R&D scheme at a cost to the Treasury of£720 million.

More information on the number of claims and the cost of support claimed is available via the following link: http://www.hmrc.gov.uk/stats/corporate_tax/randdtcmenu.htm. Information on the number of companies benefiting from R&D tax credits was obtained from a HM Treasury official, November 1 st 2010.

TIGA’s Recommendations:

TIGA believes that HM Treasury should consider making changes in four key areas to the existing R&D tax credit.

1.     The scope of R&D tax credits credit should be expanded to include other associated costs incurred in the development of a new game: premises costs, the costs of applying for IP protection and design costs.

2.     Increase the rate of relief under the SME R&D tax credit scheme from 175 per cent of qualifying expenditure to at least 200 per cent. This would mean that for every pound that an SME spends of qualifying expenditure it would get two pounds of tax deduction which it would use to reduce its corporation tax.

3.     SME R&D tax relief should be reformed to help loss making companies. At present, loss making businesses receive 24p for every£1 spent of qualifying expenditure. This should be increased to 28p for every£1 spent, so that loss making, R&D intensive firms also share in our proposed rate of relief.

4.     The claims process should be simplified. For example, HMRC could make more advance agreements of claims so that developers in the games industry and other sectors could have more certainty of what reliefs they are going to receive. Additionally, developers should have a named contact within their HMRC R&D Unit to approach with questions about the eligibility of their costs and activities.

About TIGA:

TIGA is the trade association representing the UK’s games industry. The majority of our members are either independent games developers or in-house publisher owned developers. We also have games publishers, outsourcing companies, technology businesses and universities amongst our membership. TIGA was awarded‘Trade Association of the Year’ and the‘Member Recruitment Award’ at the Trade Association Forum Best Practice Awards 2010. TIGA has also been named as a finalist in the 2010 Chartered Management Institute (CMI) National Management and Leadership Awards in the category of‘The Outstanding Organisation of the Year Award (SME)’.

TIGA's vision is to make the UK the best place in the world to do games business.  We focus on three sets of activities: political representation, generating media coverage and developing services that enhance the competitiveness of our members.  This means that TIGA members are effectively represented in the corridors of power, their voice is heard in the media and they receive benefits that make a material difference to their businesses, including a reduction in costs and improved commercial opportunities.

For further information, please contact Eva Field, TIGA PR Manager on: 07814 039 983, or email eva@tiga.org.



<2> Annual Innovation Report (Department for Business, Innovation and Skills, 2010), p. 6. See http://www.berr.gov.uk/files/file54587.pdf

<3> A TIGA survey of developers in 2009 showed that 29 per cent of studios use R&D tax credits as a source of finance.

 


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