dwlt.thinksOutLoud

On Tax Breaks

[This has been sitting in draft for a while. I thought I’d post it in advance of the budget this week.]

Way back in June 2010, the government decided to axe the proposal made by the previous administration to provide the games industry with some sort of tax break, saying that the proposal was “poorly targeted”.

On the back of that, industry reaction was along the lines of “no, it’s really well targeted, look it says specifically ‘games’ on it”. However, it strikes me that “poorly targeted” actually means “too narrowly targeted”. Ontario’s much vaunted games tax relief isn’t games tax relief at all; it’s actually digital media tax relief. This gets around the “what is a game?” problem by allowing anything digital and interactive to qualify.

The other aspect of Ontario’s tax relief scheme that I never see mentioned in the UK debate is the fact that a company only qualifies for the scheme if they spend over CA$1 million per year on employment costs. That equates to around £625,000 in real money. If we assume that an average development company spends around £5,000 per month per employee (and that any system in the UK imposed an equivalent threshold), a company needs to employ a minimum of 10 staff. Given the transition of the industry towards smaller, one-project companies, how many in the UK would actually qualify?

In any case, I think the call for tax breaks won’t succeed this time around, or at any time during this administration. For one, the Tory party really don’t like to target any one specific industry over any other. For another, there’s the administration cost to consider – any such scheme would introduce more bureaucracy and paperwork at a time when David Cameron is ranting against such things in a speech to his party. Ideologically, there’s a belief that the best route to economic growth is to enhance the fundamentals for every business and industry, not just the select few.

TIGA’s recent call to expand the existing R&D tax credit seems logical and sensible, and may well gain support (though I’d be surprised if it happened this time round). However, I know that a number of games companies have successfully claimed on the scheme, so perhaps not that much would be gained.

At any rate, do I think tax breaks would be a good thing? They’d probably be useful to some extent. However, I don’t believe that they’re required to build successful businesses and a successful industry, and I certainly don’t believe that having them would somehow instantly and magically safeguard the UK industry.