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When approved, the games tax credit will be a welcome boost for one of the UK’s most vibrant industries
The games industry’s campaign for a production tax credit has been a rollercoaster ride. Calls for a tax credit similar to that granted to film started in the noughties, and in 2010 the Brown government announced that it would introduce one. The proposal was overturned by the Coalition in 2011, but it has now changed that decision in the Budget.
Many see the Government’s decision to support a games tax credit as a sign that it recognises sees games as being in the vanguard of its plans for the creative industries.
The industry worldwide is bigger than film and music put together, and the UK is one of the top five games producers - although its position has slipped - and remains the largest European market.
UK developers have created a host of household game titles, from Lara Croft and Grand Theft Auto to Moshi Monsters, and remain at the forefront of new developments.
However, the need for a games tax credit was clear. Tax incentives implemented by competitor countries - particularly Canada and France - have created an uneven playing field, leading to a brain-drain of talent from the UK. Also, UK studios faced difficulties in implementing the kinds of production-funding models the tax credit facilitated for films.
Osborne Clarke advised games industry trade associations regarding the games tax credit, which put the case that it would help combat international pressure and stimulate growth - a case the Government has now accepted.
The basics of the games tax credit are that qualifying companies will get corporation tax relief on profits and losses arising from qualifying game development costs, but concealed within that are legal, financial and practical issues that need to be resolved.
Resolving those issues will require consultation between government and industry. For example, the details of which products will qualify (what is a ’game’?), what the criteria will be and how the ’cultural test’ will work (necessary to accommodate EU rules on state aid) all need to be finalised.
While the games tax credit will benefit from lessons from the film tax credit, there are a number of issues to address, since games are a different kind of product to films (or, indeed, TV programmes), with a different commercial framework. In addition, the government will need to seek EU approval for the tax credit. As a result, it is at least a year away.
Just as importantly, the industry will need to put the tax credit into practice, which will mean innovating and adapting finance and business models, and encouraging both domestic and overseas studios to produce games in the UK. There are already a number of finance structures in development and the recent announcement has prompted further interest in this area.
The future looks bright for the UK games industry and the tax credit, once it is implemented, will be welcome.