Combining reliefs to maximise claims

"To grow interested in any piece of information, we need somewhere to ‘put’ it, which means some way of connecting it to an issue we already know how to care about"

When Alain de Botton referred to categorising information, he was not thinking of accounting and dissecting data but his quote is relevant to both. Any expenditure that occurs for a company needs to be categorised correctly - not just in the P&L but to the correct project and business unit. This is obvious to many but for smaller companies, it is often harder to achieve. Take for example a company that uses Xero - it can code the different expenditure into units but when it comes to allocating costs, for example payroll, it may be slightly harder, especially when people’s time is spent on different projects, units and types of work.

Our main discussion with clients revolves around R&D and specifically, what percentage of an employee’s time is actually spent doing it. Many would like to answer ‘100%’ but we know that this is not what HMRC accepts nor wants to see - surely everyone has some time spent engaged in HR or office-related work which is unconnected to R&D?

This discussion can become far more technical when there are different projects, different business units or even different types of tax reliefs. Take a recent Games Development Company that came to us - it had rather a significant problem with categorisation. It had received certification from the BFI for a game and some employees worked part of their time on it. However, it also undertook R&D to develop a more immersive experience which involved many of the same personnel and costs. Unlike others who have been through this process before, it did not have two specific vehicles (R&D Co and Games Co) to which it had been splitting their time. It was therefore seeking specialist advice as to how to report these business units without double counting any costs against two potential tax reliefs, namely R&D tax relief and its VGTR tax relief.  It also had the more difficult situation of having an experience which did not qualify for VGTR but was a project in itself. By working it through and getting clarification on where their expenditure met the relevant criteria  with
Anna Mansi, the BFI’s Head of Certification, it became clear that the expenditure qualified for Animation Tax Relief so long as it was separated from the other claims appropriately.

This is a great example of where specialist help, in terms of legal and accounting, were able to support the company.
Nick Johnson from Affect Group went through all of the expenditure with the client, making sure that none was double counted and worked rigorously to divide up costs and maximise the claims where possible.

Finstock Capital was then able to assess the likely claims and, with the support of the accountants opinion, were able to provide a loan to the business based on their potential claims so that they could maximise their cash today and take full advantage of the reliefs available to them. This also meant that the claims could be inspected, reviewed and submitted in good time and not rushed. Thus the client had fewer concerns about the impact of potential enquiries from HMRC.

The final piece of the puzzle in this case was the specialist support the client and Finstock Capital received from lawyers in the creative space who know and understand the reliefs and were able to structure the loan to meet all the likely outcomes and cover all of the potential  reliefs.
Alan Moss from Harbottle & Lewis explained that “Finstock Capital really added value to the studio through its expertise in the interaction between the different reliefs that are available to games companies. They were also very responsive and pro-active throughout the process.”

At the beginning of the year, it is hard to know what the best way to categorise every piece of information in business but, if possible, we would recommend making it as clear as possible for HMRC to see how you have gone about it. There are multiple creative sector reliefs available and by using trusted partners, every company should look at ways to categorise their costs appropriately and across their business structures from an early stage to ensure they can claim the appropriate level of tax relief.

We would be delighted to hear from businesses as to what tools they find best to help them on this matter and what works best for games companies in general?