What is an SPV Structure?
A Special Purpose Vehicle (SPV) is a subsidiary company set up by a parent company to manage specific projects or business operations. In the context of game development, an SPV is typically established to oversee the creation of a particular game, helping to isolate financial risk and simplify project management. This structure can be valuable for various business sectors but is particularly effective for industries that require clear separation of income and expenses for specific projects.
Why Do Gaming Companies Typically Use SPV Structures?
Gaming companies often use SPV structures due to their significant legal and commercial benefits. These include:
- Risk Isolation: An SPV helps separate the financial risks associated with a game development project from the parent company’s overall financial health. This can protect the parent company’s assets if the project encounters unforeseen challenges.
- Clear Financial Reporting: By isolating the income and costs specific to a project within an SPV, game studios can achieve clearer and more transparent financial reporting. This separation allows for better tracking of project-specific profitability and costs.
- Project Management: Having a dedicated entity for each game development project helps streamline management and operational oversight. This structure enables studios to allocate resources more effectively and monitor progress with greater precision.
- Commercial Justification: It’s important to highlight that an SPV must be established with valid commercial reasons, such as risk management, clearer reporting, or operational efficiency. Setting up an SPV purely for tax benefits could be seen as an avoidance measure and may attract scrutiny from HM Revenue & Customs (HMRC).
How Does This Impact a VGTR Claim?
While SPVs can enhance the process of claiming Video Games Tax Relief (VGTR), it’s crucial to understand that the primary purpose of setting up an SPV should be for legitimate commercial benefits. When structured properly, an SPV can still claim VGTR. The relief would be based on the recognised costs within the SPV, rather than any underlying expenses incurred by the parent company. This ensures that the claim is compliant with VGTR rules and that the benefits of the claim are justified by the costs directly associated with game development within the SPV.
Studios should ensure they maintain transparent documentation, including development agreements and staff loan agreements, and adhere to recognised commercial rates. Additionally, all usual VGTR requirements—such as obtaining certification from the British Film Institute (BFI) and adhering to EEA outsourcing guidelines—still apply.
Final Thoughts
Establishing an SPV structure can be a strategic move for game studios looking to manage specific game development projects effectively while maximising VGTR claims. However, it is essential to ensure that the SPV is created with sound commercial intent and complies with all relevant tax and legal regulations. Consulting experienced tax advisors and solicitors familiar with the gaming industry is recommended to navigate the complexities of setting up an SPV.
At Plus Accounting, we have extensive experience helping game studios set up compliant SPV structures and guiding them through the VGTR claim process. For more information or to discuss your specific situation, feel free to contact us.
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