The UK games development sector adds around £1bn to the economy every year, and employs 9,000 highly-skilled staff. So isn't it time the Government gave it a break? Johin Hill finds out more about the arguments about tax breaks for the industry.

Prominent games industry figures point to the film industry as an example of an industry that has benefited from tax relief. A programme of tax relief was introduced in January 2007 to help promote sustainable film production, and has since attracted £645m in claims from 650 film productions. Of these claims, 585 films have received payments totaling £570m. Figures from HM Revenue and Customs from August 2011 indicate that 330 films made a single claim, while 315 made two or more. Large-budget films with production budgets over £20m made 9% of claims. Payments to large-budget films totaled £340m, with £230m going to limited-budget films.

A spokesman for Northern Film and Media said the credit – which offers a 20% to 25% rebate on features that meet the criteria – is “a vital tool in attracting inward investment into the UK, and has enabled the country to maintain competitive advantage in an often transient industry”.

He said: “Combined with local incentives, such as Northern Film and Media’s Finance for Business North East Creative Content Fund with Northstar Ventures, the tax credit has made the region an attractive place to make films recently.

“Production, and the economic benefits it brings, tends to be drawn to the countries and regions that can offer the best incentives and tax credits, which can be as much as 40% internationally.

“The UK games industry has lost a considerable amount of investment, production and talent to countries such as Canada, which offers an attractive tax credit for games. The same is true of TV drama, which is ineligible for the UK film tax credit, despite the increasing convergence between high-end television and cinema.”

Newcastle University digital media lecturer and film-maker Tina Gharavi is a big believer in tax credits for creative industries. She used tax credits to help make her feature film I Am Nasrine, a coming of age story of Iranian refugees in the North East of England. After packing out its original screening, I Am Nasrine returns to the Tyneside Cinema in Newcastle on February 27 and March 1.

“Having that package in place made it more feasible”, she says. “I’d been working on the film for about five years before I started shooting, but having 25% of the budget meant you could do it a lot easier.

“You apply to get the tax credit, and then you start shooting and keep your receipts. At the end, you make your claim. We filmed a bit in Iran, but didn’t submit those receipts because they weren’t eligible.

“The important thing is that people are coming to shoot here because Britain has a tax credit system. If not, they’ll just go and set up somewhere else, like Hungary. And if a Hollywood film comes here, it will invest a huge amount into the economy.” Gharavi believes there is often a lot of “skittishness” about supporting creative industries in the UK, despite their value to the country, both culturally and financially.

“Film makers are going through a tough ride at the moment with the closure of the UK Film Council. There is a lot of skittishness about guarding these industries.

“They don’t understand how tender these things are. Film companies don’t have built-in robust excess reserves. It’s quite a fragile industry with a lot of small companies, and there’s not been a lot of tender care for something which is so important.

“When cultural industries are threatened, people just tell them to tighten their belts. But people are leaving for other places or other industries because it’s not a viable living here.”

Earlier this month, the EU created a new line to the debate. The French become tangled in negotiations with the EU when it tried to renew its own game tax breaks at the turn of the year, meaning that French companies cannot currently apply for tax relief. TIGA is hopeful that, even if France’s measures are blocked, it will be able to argue for tax relief in the UK on different terms.

However, the EU is not the only group with reservations about tax relief. In a 2010 article in games business blog GamesBrief, Nicholas Lovell wrote that such measures would be “about protecting companies, not jobs”, and would be more likely to support “entrenched companies” than innovative smaller firms. He pointed to a Develop 100 survey in 2010 which said that 82% of product sold in Canada is by a publisher-owned studio, and argued that Canada should instead “encourage its best and brightest to start new businesses, not to take attractive (and subsidised) jobs with global behemoths”.

North East independent games studio Eutechnyx is also lukewarm on the benefits of a tax relief system. The company has created games such as the latest officially licensed Nascar racing game, and is investing private equity money from backers such as Northstar Ventures and Europe’s Prime Ventures into its new free-to-play concept Auto Club Revolution.

For a start, chief operating officer Darren Jobling is a bit concerned about the “cultural test” that games would have to pass to receive tax credits. TIGA has said 44% of UK games would satisfy the cultural criteria, but Jobling says games firms could “end up producing games that meet the criteria, rather than focusing on commerciality”.

He suggests expanding the games industry research and development (R&D) tax credits that were announced by the Government last March, and skirting around the “cultural” aspect entirely.

“I think R&D credits will be very good and it’s a step in the right direction. If they could expand the remit of the R&D tax credit to classify a whole games product as R&D, that would be a better scheme than having cultural criteria.

“With tax credits, you’ve got to be a little bit careful you don’t temporarily upset an ecosystem, and find it’s been destroyed when the credits are removed.

“Do you want a big company to come in and cause mayhem, only to leave when the tax credits stop?

“My view is that if you invest in your technology and produce something that’s successful worldwide, that’s the easiest way to make yourself a successful business.

“Sure, it takes longer, but we’re much better getting a lot of people that want to be in the North East, producing creative stuff and making our own in-built industry.”