UK video game studios sit at the intersection of multiple technical accounting disciplines: creative sector tax credits, R&D-style cost capture, international contractor management, IP ownership planning, and increasingly, platform-specific revenue recognition. We have spent years building specialist capability in this area. Here are the structural considerations that move the needle.
The studio structure question
Most UK studios operate one of three structural models:
Single operating company
The simplest model. One company develops the game, owns the IP, distributes it, and claims VGEC. Suitable for studios releasing one or two games over a five-year period with limited external financing.
Studio + IP holding company
A holding company owns the IP and licenses it to one or more operating studios. The operating studio claims VGEC; the IP company collects royalties. This structure is helpful when the studio wants to ring-fence IP from operational risk, raise external finance, or sell the studio while retaining the IP rights.
Project SPV per title
Each major title is developed in a special purpose vehicle. The SPV claims VGEC, receives investor funding, and pays royalties to the studio. This model is common in publishing-funded or co-financed projects.
The 80/20 UK expenditure restructure
Under VGEC, qualifying expenditure must be "used or consumed in the UK". The previous "European expenditure" basis under VGTR allowed studios to allocate significant work to EU contractors and still qualify. The new UK-only rule (with limited overseas exceptions for specialist work unavailable in the UK) has forced restructuring.
Studios have responded by:
- Bringing core engine, design, and gameplay teams in-house in the UK.
- Establishing UK-based recruitment pipelines for specialist roles previously sourced from Eastern Europe.
- Carefully documenting overseas expenditure that genuinely qualifies under the exceptions.
Contractor vs employee: the recurring question
Many UK studios rely on freelancers for art, audio, QA, and short-burst engineering. Two issues:
- IR35: where contractors operate through PSCs, the studio must apply the off-payroll rules (unless it qualifies as an SME).
- IP assignment: contracts must include unambiguous IP assignment clauses, ideally with backup waiver of moral rights. Studios that fail to secure IP face real problems on financing or sale.
We review contractor agreements for studios to ensure both tax compliance and IP ownership are watertight.
Revenue recognition: not as simple as Steam pays you
Game revenue arrives in multiple shapes:
- Premium sales (Steam, Epic, console stores).
- In-app purchases and microtransactions.
- Subscription revenue (Xbox Game Pass, PlayStation Plus, Apple Arcade).
- Publisher advances against royalties.
- Crowdfunding pledges.
Each has its own recognition profile under FRS 102 or IFRS 15. Publisher advances, in particular, are tricky: they may be a liability (refundable on failure to deliver), a contract liability (deferred over delivery), or revenue (non-refundable). Misclassification distorts both accounts and tax computations.
Localisation and platform commissions
Localisation costs (translating into Mandarin, Korean, Brazilian Portuguese, etc.) qualify under VGEC where the work is performed in the UK or by UK-based contractors. Where localisation is outsourced to overseas agencies, the spend does not qualify. We help studios structure localisation pipelines to maximise qualifying expenditure.
Platform commissions (typically 30% on Steam, Epic, App Store; lower for Microsoft and on certain Sony tiers) are revenue-share rather than commission for accounting purposes. The studio reports gross revenue and the platform fee as an expense, not as a netted-down revenue figure. This affects VAT, R&D coverage, and turnover-based KPIs.
VAT for digital games
Sales of digital games to consumers in the UK are standard-rated. Sales to consumers in the EU follow EU VAT rules through the platform (most marketplaces handle this). Sales to consumers in other countries follow local rules. The studio sells to the platform, not to the end consumer, so the platform usually handles end-consumer VAT.
However, where a studio sells directly through its own storefront (e.g. a Humble Store equivalent or direct keys), it bears the full digital-services VAT compliance burden across multiple jurisdictions. Our VAT team handles these structures.
Funding and investor relations
UK studios often combine VGEC, R&D tax relief (where research-style work is genuine and separately documented), SEIS / EIS for angel rounds, and publisher financing. Sequencing matters: VGEC and R&D cannot apply to the same expenditure, but they can apply to different cost centres within the same studio.
How we support studios
Our practice supports studios from two-person prototyping outfits to teams of 80+ developers across multi-title pipelines. We provide monthly management accounts, VGEC and R&D claim preparation, IP and royalty accounting, payroll for full-time and contractor teams, and investor reporting packs. Business advisory covers studio sale exits and publisher deal structuring. Book a session or read our creative industries sector page.