The concept of an SPV (Special Purpose Vehicle) company group structure is becoming increasingly popular among game studios, particularly for those looking to maximise their Video Games Tax Relief (VGTR) claims. We outline the key aspects that studios should consider if they are thinking about implementing an SPV structure.
What is a Special Purpose Vehicle and Why Consider It?
An SPV is a wholly owned subsidiary company that can be set up to manage the development of a specific game or project. This structure is often adopted because it can increase the value of a VGTR claim by ringfencing the income and costs related to the development. Additionally, this separation allows for clearer financial reporting and greater oversight of project-specific profits and losses.
Key Considerations for Game Studios
1. Ownership and Structure:
The SPV would be a wholly owned subsidiary of the parent company. The parent company oversees overall operations, while the SPV is responsible for the actual game development.
2. Engagement Between Parent Company and SPV:
The parent company contracts the SPV to undertake the development of the game. The SPV, in turn, claims the VGTR relief on behalf of the project. This structure ensures that the development costs remain isolated, simplifying the relief claim process.
3. Payment and Financial Transactions:
The parent company will pay the SPV a development fee for creating the game. This payment arrangement is critical to demonstrate the commercial nature of the relationship and avoid issues with HM Revenue & Customs (HMRC).
4. Loan of Staff:
Game studios must ensure that staff are available to work within the SPV. Typically, the parent company will loan staff to the SPV under a legal loan agreement. It’s essential to have a clearly documented and legally binding agreement outlining the terms of this loan arrangement.
5. Commercially Justifiable Man Month Rate:
When loaning staff, the parent company must charge the SPV at a commercially justifiable man month rate. HMRC has been known to scrutinise these arrangements, so studios should be prepared to provide evidence that the rates charged are in line with industry standards.
6. Commercial Justification:
The decision to establish an SPV should be based on sound commercial reasoning, not solely for tax purposes. For example, some studios use the SPV structure to separate game development from other activities like publishing and marketing, which remain under the parent company’s control.
7. Legal Documentation:
You’ll need to engage a solicitor to draft the necessary legal agreements, including both the development agreement and the loan of staff agreement. It’s crucial to work with legal professionals who are familiar with these arrangements and can ensure compliance with both tax and corporate law.
8. Financial Equilibrium:
In most cases, the development fee paid by the parent company to the SPV and the loan of staff fee paid by the SPV to the parent company will be the same. This ensures that the SPV breaks even, allowing the studio to maximise its VGTR claim.
9. VGTR Rules and Certification:
Studios must remember that the usual rules and limitations for claiming VGTR still apply. For example, you must obtain certification from the British Film Institute (BFI) and ensure that any work outsourced outside of the EEA (European Economic Area) follows the required guidelines.
Final Thoughts
Establishing an SPV structure can be a highly effective way for game studios to maximise their VGTR claims and streamline the management of game development projects. However, it’s essential to ensure that all aspects of the structure, from staff loan agreements to financial transactions, are commercially justifiable and properly documented. Studios should also consult with experienced solicitors and tax advisors to ensure full compliance with legal and tax regulations.
If you’re considering setting up an SPV structure, it’s advisable to speak with a professional who is familiar with the specific needs of the gaming industry and can help you navigate the complexities involved. At Plus Accounting, we have extensive experience in this area and can guide you through the process to ensure you are making the most of your VGTR claims while remaining compliant with HMRC regulations.
For more information or to discuss your specific situation, feel free to reach out to us directly.
Author: Luke Thomas, Director, Plus Accounting
Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.
Date Published: 18 October 2024