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In its "Digital Britain Report" dated 16 June 2009, the Department for Culture, Media and Sport announced that the Government had committed to working with the games industry to gather evidence for a culturally based video games tax relief. Coming so hot on the heels of the Chancellor's Budget announcement that the Government would be looking at possible changes to the tax treatment of IP to encourage companies to site their R&D and other innovative activities in the UK (eg through a "patent box" scheme as seen elsewhere in the EU), there is a real sense that the Government is listening to games industry pleas for help.

The Digital Britain Report was swiftly followed by a letter dated 30 June 2009 from Sion Simon MP, Minister for Creative Industries, to Michael Rawlinson, Director General of ELSPA (the Entertainment and Leisure Software Publishers Association), and Richard Wilson, CEO of games industry body, TIGA.  In this letter, he invited them to produce evidence to show how a tax incentive with a specifically cultural focus would help resolve the issues the games industry currently faces.

Fired up by the possibility of a tax break, interested parties sprang into action and, on 28 August 2009, TIGA submitted its report "Investing in the Future".  In this report TIGA outlined a tax relief scheme similar to the tax incentive scheme offered to the UK film industry.  It also addressed the 'cultural' aspect of the relief and how this might be framed.  It suggested that there should be three different tiers of tax relief, depending on the size of the games studio, with games evaluated against various factors including "European heritage and game locations, languages, innovation, narrative, and location of development and key development staff".

In a separate report commissioned by NESTA, evidence was gathered from around the video games community to highlight the positive impact a tax credit would have in terms of making it easier for UK studios to retain talent, attract investment and retain their IP rights, as well as helping developers to explore new direct-to-consumer business models.

Although the Government is expected to announce its proposed changes to the taxation of IP prior to this year's Pre-Budget Report, no time frame has been set for assessing whether a video games tax relief should be introduced. Sion Simon simply urged interested parties to produce a coherent case as soon as possible so that his Department could assess whether it could be put to the Treasury.  So for now, it's a case of 'watch this space'. However, the Government appears to be seriously considering the possibility of a tax credit in order to allow the UK to compete effectively for talent and financial backing with jurisdictions such as Canada, France, South Korea and China, all of which provide specific tax breaks for games development.