Level Up Your Business: Navigating Debt Financing and Tax Credit Strategies in the Games Industry

We are good to go ahead. So, welcome to Navigating Debt Financing and Tax Credit Strategies in the Games Industry. A catchy title, I'm sure you'll agree. Um, my name is Pier Hunt. I run a debt financing business called HH5. I'm going to sit here and talk to you today about the debt financing element. and Nick Johnson is here from the effect group who are specialists accountants in the media sector who after I've spoken is going to talk to you about tax credits and tax credit strategies. Uh so without further ado, we'll begin. Um so what is debt financing? What are the difference between debt financing and equity financing? One of the key things to take away from today is really that debt financing allows you to raise capital or improve cash flow without giving up equity. uh and that's you know really one of the the key points I can't emphasize that enough. So the benefits here are you obviously keep full business ownership uh there will be

capital repayments with interest but we don't expect dividends or a share of future returns. We will require security or a charge of some kind but that falls away once the loan is repaid. Uh and lastly I'm afraid you don't get access to investor knowledge but as I said you're obviously not giving up equity in return for that. Um we've touched upon this. So examples of things that can be debt cash flowed or debt financed which effectively the same thing is publishing and or development agreements, contracted payments and tax credits. I would say tax credits and publishing and development agreements are the most common forms of collateral we tend to lend against. Um the debt finance will lend you these funds minus interests and costs. Uh mainly those are legal costs, our lawyers uh costs. When the funds received from uh either HMRC or from whoever you're publishing or development contracts with, you then repay those funds to the financier to pay off the debt. Why use debt financing? Well, we've

touched on this already. The key thing is a cash flowing future income streams creates liquidity improves your cash flow without having to go up equity in the in your business. So this will allow you to speed up game development, allow the business to reach the next development milestone. Perhaps you know you have a development contract but you haven't got sufficient funds to get to that next milestone. Well, this you can borrow that money in advance from us and that'll allow you to then make it to the next milestone. Um similarly, you can grow the development team or perhaps start porting onto a new platform ahead of schedule. If you're getting some buzz about the game and you know your things are going well, you might want to actually start that process of porting to a new platform as soon as possible. And we can help with that by advancing you funds against these future income streams. Um or on a more sort of negative end of things, you know, if you're running low on cash, you know, we can help keep the lights on until the game is released and generating revenue. And as I said, all of this without diluting any equity ownership, so you keep 100% of your business. So tax credits, we've talked about um tax

credits are one of the most common elements being uh being cash flowed. The key piece of collateral here is an opinion letter from a reputable media accountancy firm. Obviously, the effect group represented by Nick here is one such firm. There are only probably eight or nine firms in the UK that a debt finance here would accept an opinion letter from. So, it is a very specialist area. Uh, and the opinion letter is effectively the accountant's opinion is the level of the tax credit that's going to be generated. Um, and the opinion letter here is addressed to the debt financier as well as the games producer. So that means that the accountant owe us the financier a duty of care as much as that they owe the producer and that allows us to use that letter as the key piece of collateral for the loan. Um there is often well there can be an additional cost to this letter because you're owing the accountant rather is owing a third party a duty of care as well as yourself. Obviously that increases their liability and so they may charge you more for that. So, I would always suggest when speaking to games producers that when you're getting

your accountancy fees negotiated, always make sure an opinion letter to a third party is included because it won't really change at the cost of the accountancy fees day one, but if you have to go back at the 11th hour and ask your accountant for an opinion letter at that point, they will tend to charge you an extra fee. Um, we will normally only lend up between 80 and 90% of the tax credit. Um obviously that's just to give us a bit of a buffer in case the anticipated spend is lower than expected to make sure that we are able to recoup the funds and our investors to get their money back. Um the loans against tax credits will normally entail a letter to HMRC asking them to pay the tax credit directly to the lender. So in this instance we would have HH5 would advance funds to the games producer. But when the tax when you filed your tax return and the tax credit is being repaid, you ask HMRC to pay us back directly which obviously reduces our risk which hopefully means we can charge slightly less uh on the interest. So other elements that can be cash flow.

We touched upon obviously development contracts um and uh producing production contracts against a publishing and development contract. The funds normally paid directly to the games producer. So we then have you then have to pay those onto the debt financia to repay the loan. Um there will be as I said we can do a number of milestone payments which means we can do multiple draw downs and multiple repayments. So effectively you might want to borrow you obviously you want to borrow the shortest amount the smallest amount of money for the shortest period of time. So what we can do is stagger your draw downs and your repayments to ensure you're only borrowing money for the minimum amount of time. One thing to flag with regards to this kind of debt financing and these kind of contracts is that there may well be a cancellation clause in the contract. Now as a debt financier obviously we have to assume a worst case scenario. So if there is a cancellation clause in the contract normally that comes with a fe a cancellation fee or charge. So we can cash flow that amount of the contract but we won't be able to cash flow the full value of the contract

because we have to assume a worst case scenario and assume that the contract will be cancelled. So in in the past what we've done when we've had that problem is we were working with a producer and they also had some tax credits coming their way. So what we were able to do is effectively lend the full value of the of the development contract but we took rights over their tax credits which in addition to the cancellation charge was sufficient collateral for us to effectively have the right amount of collateral for the loan. And then as that loan was repaid, we released our rights over the tax credits back to the producer, allowing them to then borrow against those tax credits again in the future. Uh but that's just something to flag. Uh as each milestone hit, the developer pays out and the borrower obviously uh then pays us back the uh the debt. Um moving on to the next slide, costs. So obviously one of the key things is how how much does this all cost? So the cost of loan is usually structured into an arrangement fee, an interest reserve and legal costs. Um the arrangement fee you know can range in size but generally

between 1 and 5%. We'll go into this on later slides. The interest reserve is simply the amount of interest for the number of months of the loan. So normally the interest is calculated on a per month basis. So if for example you had a six-month loan and the interest was 1% a month, the interest reserve would be 6%. Um, and lenders legal costs. The these can range in size enormously. The size of the loan does tend to impact the legal costs a little bit. Obviously, one might argue that it shouldn't, but inevitably it does. We can do uh tax credit loans for as little as about £5,000. Um, but they can be as much as 15 to 20 or even more if it's a really huge uh tax credit claim. Um so we will also a lender will also need to take extra forms of security. So obviously we have the opinion letter that's the key piece of collateral for the loan as far as a borrower as a as a lender is concerned but we'll also need to have a what we call a shortfall position at the top of the fiscal waterfall. Um before I go any further it

just should be noted that both of these elements only come into play if the funds are not returned from the expected revenues. So obviously we would expect the monies to come back from the uh from the tax credit or from the development or publishing contract. If they don't or if there's a shortfall then these come into play. Uh so effectively there's a shortfall position which means that if there is any money outstanding HH5 then moves to the top of what we call the fiscal waterfall which means any revenues created by the game are paid directly to HH5 until the loan is repaid. But again as soon as the loan is repaid that position falls away. Um, and then the second thing is a charge against the game or company. Um, this is effectively to be quite blunt to effectively allow us to styy you taking the game to market. So if you haven't repaid us all the money we're owed, we have a secure charge against the the company or the game and we can effectively therefore control the IP and stop you going to market. We are a a debt financing business. The last thing we want to do is try and take the game to market. But at the same time, we have

to have that ability to styy you doing that if you still owe us uh the money. Um with regards to the charge, one thing should be noted is that if the game has been developed through an SPV, we may well look to take security against the parent company as well. As obviously we all know SPVS can be rolled up relatively quickly. So it's just something to to bear in mind as well. Um and as I said before, the situations only come about if the loan is not repaid from the expected revenues. Um so the next slide. So these are indicative heads of terms pretty standard. These are kind of generally the the end elements that we need to agree before we can instruct lawyers. So in this instance assuming a a tax credit or a loan here of half a million. We'll assume that they well let's say for the moment that's 90% of VGTR. Um and in this instance so I can show you the flexibility 50% is being repaid by December this year 50% next year. The arrangement fee 3% relatively standard interest rate per calendar month 1.25%. interest reserves slightly more

complicated here because effectively because it's half is being repaid after uh four months. The second tranch is obviously at half that it could be at half the rate of the full loan or yeah it's it's easily calculable. So that takes us to 8.75% in total plus the 3% arrangement fee will be your total interest costs legal fees yeah £4 to5,000 plus VAT uh default rate of 3% a month. So going back to I was saying if if the fund if the loan hasn't been repaid from the expected revenues by the end of the loan term then any outstanding sums will acrue interest of 3% a month on them until the loan is repaid that tends to range between two and a half and 3% as an industry standard. Um, as I touched on e previously, first shortfall position, the waterfall opinion letter made out to uh the firm, security over the project, and then we'd normally seek some kind of credit as well. Maybe it be an EP credit or an associate producer credit, something to reflect the fact that we've obviously helped bring the game to market and help finance it. So, what

does that look like in reality in terms of actual costs? So, if we assume a tax credit of half a million, 90% of that is 450,000. So that would be the maximum amount we'd be prepar prepared to lend. Going down to the interest reserve, we can see that the total interest would therefore be 11.75. So that's the 8.75 plus the 3%. And 11.75% of 450,000 is 52,875. Legal fees of 5,000 plus VAT obviously gives us £6,000. So therefore, the loan would be 450,000 minus the total interest and minus the legal costs, leading us to a total advance of £391,125. So it's important to note here that effectively the interest and the legals are deducted from the principal before the loan is advanced. And so you can see here quite interestingly you got a tax credit of half a million, but very quickly you're only actually getting an advance of 391,000. So, it's always worth being aware of that. So, that drop

down when you're planning your finances. Uh, the next slide is rather busy and has quite a lot of detail on it, but this is once we've agreed those heads of terms on the previous slide, this is an indicative list of legal documentation required. And I grant you it does look like there's a lot on there, but actually, if you start looking through it, you'll notice the vast majority of these things you will already have. Um, and some of them may well not be relevant. So, for example, under D, we've got lender board resolutions. you know, if your company doesn't have a sort of formal board in that s then obviously you're not going to need those. ENO insurance might be unnecessary as well. So, this is a pretty comprehensive list. So, it may well be not all of these factors are are needed, but that gives you a good idea of the kind of uh documentation we'd need to see and our lawyers would need to review. What what is a lender looking for? Well, we've established this clear collateral against which the money is to be lent, a clear time frame for repayment, and a clear path for repayment. We need to understand exactly how we're going to get paid back and when. And also very

helpful is a proven track record of achieving. You know, if we're looking to cash flow milestone payments, well, it's always good to see that you've made at least two or three of those milestone payments already. And similarly with tax credits, if we can see that you have secured tax credits in previous years, then again, that's going to give us more confidence to proceed with the loan. Um, obviously, it's good to see a company with a good financial covenant strength in case there are any issues with repayment. Obviously, if the company's well financed, then we're less worried about you being able to repay the loan. Uh, a company with a reputation for clear financial dealing. Obviously, if we're lending you money, we want to know we're dealing with people we can trust. Um, and then generally speaking, our minimum loan size, we can go a smidge under 100,000, but generally that tends to be the minimum loan size because much below that, the costs of the loan, the legal costs, it it almost starts to get to a stage where it's not really worth it for the producer. Um, which is obviously what we're very very conscious of. Um, lastly, these are a couple of games that we've helped finance. You may may have seen some of these, uh, but these are indicative examples of some some games we've worked on and some

clients. And so, yeah, how can HH5 help your business? So, what we can do is we can give you initial advice about what can and can't be cash flowed as we've sort of outlined today. We can introduce you to accountants such as Nick who are experts in this area and lawyers that also work very closely in this area. we can give you this indicative early stage costs and timing so you know roughly right okay if we've got this level of tax credit what kind of advance are we realistically going to get out of it we'll provide you then with the detailed quote once that's agreed the lawyers are instructed uh and once the legals are completed we advance the funds to you uh and the loan is repaid one thing I should have flagged earlier is that because of the relatively ownorous levels of default interest I would always encourage uh a borrower to maybe have an extra month on the loan than they think they might need because better to be in a position where you're potentially paying 1 and a half% extra rather than 3% extra or even two and a half. So just something to flag there. Um and one of the benefits of debt financing, it allows you, as we've touched on earlier, to speed up game

development, allow you to reach those development milestones, grow the development team, start porting to a new platform, and generally just allowing you to grow your business and move ahead uh in a way that you might not have been able to do otherwise. And of course, all of this uh without diluting your equity. Um, I'm going to hand you over to Nick now who's going to talk about tax credit strategies. Um, and then at the end we'll have some Q&A uh for for everybody. Nick,
thank you. Pier, afternoon, everybody. Just wanted to say before I start on this that um we've got quite a few video game development clients and actually some of the most successful of them do use uh debt financing within their business models to um to bring their games to market um in the best way possible and in a timely manner. So it's um it's not just people who are struggling for cash. I know a lot of people are. It's also people who are who are doing well and uh and um producing high quality games. Anyway, on to me. I'm Nick from Effect Group. Um, I've been providing strategic tax advice in

the creative industries for almost 20 years. I know I don't look old enough. Um, I've helped many game companies access the, uh, the UK tax credit, which is really useful, including the two that Pier Piers had on his slide, Pirate Queen and Tales of Kenzer. Uh my company effect has a good relationship with HMRC at policy level having lobbied for the introduction of VGTR in 2014 sat on several panels about the implementation of the new expenditure credit which I'm going to be talking about. This relationship, excuse me, also assists our clients as our games are generally approved by HMRC in about four weeks, which compares to the industry average of 3 to four months, and we've actually never had a claim denied by HMRC. Um, so here we go. I've got four topics I'm going to cover in the next 15 minutes. They are the transition from VGTR to the video game

expenditure credit or VJ. How VJ compares to VGTR. One of the optimization techniques that we use and whether VJ could be more beneficial to your game development company than the old VGTR. So on the transition to VJ, VGTR was introduced 10 years ago in 2014. So, we've had time to get comfortable with this. There were 345 claims in the last statistical year with 189 million pounds in cash paid out by HMRC. We're now transitioning to an exciting new video game expenditure credit. So, here's a transition timeline with VGTR in blue and VJ in orange. So if your company is better off under VJ, it can already start making claims. Any spend from the 1st of January 2024

can be claimed under VJ with VGTR being the only relief available up until the 31st December 2023. Where your company's better off under VGTR, it can continue to claim onspend all the way up to the 31st of March 2027. provided the game development has started before the 1st of April 2025. Now, we have seen some clients thinking about this and uh planning to start development of their games before the 1st of April next year in order to maintain access to VGTR rather than being forced into the VJ regime. um each company needs to be looked at um on its own merits to work out whether you'll be better off under VGTR or VJ. And actually I'm going to look at that in my last slide today. So how does VJ compare to VGTR?

Overall the transition to VJ is a great thing for the industry with a new headline rate of 34% significantly up on the previous rate of 25%. But digging a bit deeper, it's a bit confusing because there are actually four rates under VJ. 34%, 27.2, 25.5, and 20.4%. So what are all these different rates? How do they compare to VGTR? And how much better off could you be under VJ? I'm going to take you through a scenario quickly of a UK-centric company where UK call spend is more than 80% of your worldwide call spend. Here's a table comparing VGTR to VJ. The 80% cap which remains in place under VJ as well as VGTR means that where UK core is more than 80% of worldwide core

the headline rate of 34% is reduced down to a capped rate of 27.2%. There's then a notional corporation tax deduction which only applies to VJ. It was not applicable under VGTR of 6.8% 8% which leaves us with an effective rate under VJRE of 20.4%. Compared to 20% under VGTR doesn't feel very different but the the crucial different the crucial thing is actually this notional corporation tax deduction of 6.8%. I'm going to be talking to you about that next. Before I go there I should just cover the last of the four percentages. Please bear with me. Um, so where UK core spend is less than 80% of worldwide core, the effective rate is 25.5, which is just the 34%, there's no 80% cap. So 34% less the 25% notional corporation tax giving an effective rate

of 25.5. So what is this mysterious notional tax deduction? It's caused a lot of confusion in the industry. So I'm going to explain this further before looking at how it can be used. The rate's always 25%. Even if the game development company is loss making or has profits of under 250k being the large company 25% rate and to recap the previous slide for a UKcentric game with 1 million of call spend the value of that notional corporation tax deduction is is £68,000 the 6.8%. which is which is a big amount compared to your overall cash repayment of the 204,000 works out um about well it works out at 30 33%. So it's um it's a large amount and you need to make sure that you can use it. If you can't make use of it then then

what use is it? So how do we use it? The first way it can be used is the most simple. If you've got other profits within your game development company, um is you've got one one project you're doing which is independently financed, one that you're doing as a work for hire which is giving you a good profit margin, then you can offset that notional tax deduction against the corporation tax payable and those other profits. You can do that in the current year or in a future year. The third and most abstract point on the slide here is where you can surrender the corporation tax deduction to a group entity to reduce their tax liability in the same period or a future period. Now, this makes sense where you're part of a large game studio and your parent company is very profitable um but your your small development vehicle underneath it is just an SPV for that one project.

But you might not have that structure. You might be an independent video game developer like most of the clients that we work with and they may not be able to use that notional tax deduction. Might be because they've got a long development period. Might be because they're reinvesting all of their profits they're making from games into new projects. It might be that the the sheer size of that notional corporation tax deduction, which is £68,000 for every million of development spend, means that they can't don't have sufficient profits to to cover it all. It might be that, you know, in this slightly difficult climate we find ourselves in, that cash now is better than saving tax on future profits. In this instance, um, we've come up with a strategy to increase your VJ cash benefit by 10%. What we do is we would um design your

um, design your structure so that a profitable UK company which would be um, independent from yourselves would take 75% or more ownership over your game development company. this wouldn't give them creative control over the project. Um they they wouldn't be able to control the board. They would literally have a notional ownership of your of your entity. Now, as we saw on the previous side, the game development company gets its £24,000 of cash repayment from HMRC based on a million of dev cost. It also gets the notional corporation tax deduction of 68,000 which it surrenders up to the profitable UK company. In exchange, the profitable UK company will pay your game development company £20,400 subject to commercial negotiation for use of that notional corporation

tax. You can't use it. They can. They're willing to pay you for it. And that increase in cash of 20,400 is 10% of the um other cash benefit cash repayment you'd receive from HMRC. Um now we use this strategy for some clients. It's certainly not suitable for everybody. In fact, it's only suitable for very very few. Um we also use many other strategies including period end planning, profit extraction techniques. Um, I could go on to assist our game clients for each client is individual and that's how we treat them. So, last and mo probably most importantly, will VJ be more beneficial than VGTR to your company? Overall, the transition to VJ is a great thing for the industry and most companies will be better off because that headline rate of 34% is higher than the previous rate of 25%.

We do need to be careful. One of the positive things about the expenditure credit is it's an above the line um above the line credit. It comes into your turnover. So it will improve your financials in the event of a future acquisition or when you're seeking debt finance from a from somebody such as HH5 and peers. Second benefit of the VJ is that the subcontractor cap of1 million pounds which applies to VGTR where part of the process of designing, producing or testing the game is um outsourced to a third party um has been removed under VJ. Uh so companies who pay UK subcontractors um more than a million pounds will have no um cap on that spend. Um, a couple of negatives about VJ is that uh some companies use special purpose vehicles subsidiaries to develop their games and they charge that

subsidiary an armslength value for development services which could be 8,000 10,000 a month per person. Now, if this structure is justified, it can increase your your repayment under VGTR by 25% which is a greater uplift than uh the difference in the rates of of uh 25 to 34%. And the new VJC legislation and disclosure requirements by HMRC make it very very difficult to continue to use this man month rate or staff month rate planning. Um, just to be even, I've got a second negative about um about VJ, which is that EA spend won't qualify for relief under under VJ. Now, this actually is probably the the biggest one um because one of our clients has got a very small UK staff. Um, so about 20% of its spend on a game um is on its its UK staff and it then has lots of contractors based in

the EA mainly because they're they're cheaper. Um, so if you got a total dev cost of a million, 200,000 would be in the UK and £800,000 would be in the EA. And in that scenario, under VGTI, you'd get a benefit of £200,000 in cash. And under VJ, you'd get a maximum benefit of 68,000, which would actually only be 51,000 of a cash repayment. and uh the balance of 17,000 would be your notional tax deduction. So it's it's more than three times more valuable to maintain VGTR in that instance. Um yeah, as with any any change to the legislation, to these incentives, there will be winners and there will be losers. We work with our clients to identify which scheme they should be using, how they should be timing their projects, um, and, uh, and optimizing their tax credit strategies.

So, a summary of both what peers and I have been saying today is that debt financing is great because you can improve your cash flow without giving up equity. It can provide funds to keep the business going until game release. It allows faster growth and development and you have clear and transparent costs with no investor interference. On tax growth strategies, VJC is great. It's going to really help most companies. It's going to make us more competitive on the worldwide stage. It's going to bring in investment into the UK. We must consider each company's individual circumstances. It's possible to to pick and choose which projects you you have under VGTR and which one's under VJ. if one is EA contractor heavy for example and there are strategies that can be used to optimize your position. So I think I've spoken for for long enough um but I know it's been a very quick run through by both peers and I. So if you do need any clarifications or anything then then please feel free.

Do we have a room mic?
I think they did.
Yeah, I think it's going around. Thank you very much. Um, could you clarify how the interest reserve works on the debt financing because it looked like there was a 4% plus the monthly percentage figures. I'm just
put the microphone a bit closer. Sorry.
How's that?
Yeah.
Miles, nice one. Thanks for the talk. Um, could you just clarify how the interest reserve works specifically that initial figure which isn't based on the monthly percentages. It looked like there was a 4% plus the plus like four months of one.
Um, well, effectively it's the rate per So, for example, it's the rate per month for how many months the loan is. I think the confusion there. Okay. Well, because there was a two payback dates, the way we' calculated the second tranch of interest was we just effectively because it was 50% the repaid at the first payment, 50 and 50% repaid at the second, we just done that the we'd cut

the interest rate in half by 50%. What we could have done of course is turn to just cut the amount in half by 50%. So yeah and effectively yeah the interest reserve is just the number the amount of interest per month for how many months the loan is. Um but that may have been yeah confusing confusing slide.
Hi there hi Nick. Um quick one from me is can you clarify where if a company has claimed VGTR on a specific project whether in future periods it can then claim VJ on that same project. Nice nice to have a client in the audience. Thanks Neil. Um it's not a plant. Um so yeah indeed you can you can I think in one of the the slide with the transition from blue to orange uh showed that provided you have started development of your project before the 1st of April 2025 you can claim VGTR on that project all the way up until the

31st of March 2027. At that point in time you're forced to switch for that project into VJ. So you would what you'd have is if you had a 31st December 2027 accounting year end, you would claim the first 3 months of that accounting period under VGTR and then you'd have to claim the second nine months of that accounting period under VJ. Good.
Hi there. Um I'm curious about future cash flows with respect to the the uncertainty. So I understand the tax credits you would be able to model those I imagine relatively uh certainly but I'm curious about other cash flows. Can you incorporate those and you know what can you actually model with some certainty to get a a valuation on future cash flows outside of tax credits? Um so effectively if we it has to be to do to

do what we do as a debt financing it has to be a clear piece of collateral. So we we cannot we what we have done in the past is in the instance of a tax credit if we're speaking to a developer and they've got you know they've got their plan for the next year or so it may be that they don't actually have sufficient funds today to create the expected tax credit for the next year but we know that they're going to be getting revenues in in terms of investment or revenue from the game. So we are prepared to lend against that projected tax credit because we understand that they even though they don't have the money to generate that tax credit today it will be coming into the business obviously we'll charge a little bit more for that than we would for a tax credit when we know they have all the money to incur that that credit similarly with development or publishing contracts I think as long as we can see that there is a a contracted payment coming your way and you can give us asurances that you will have sufficient capital to to develop the game to that point particularly with our with the input of the funds we're giving then that should be fine as well. Um it is slightly on a case by case basis though obviously we have to have comfort that the business is going to be able to get there. Um but

as long as there's a clear path to that that result then that should be fine. And I think just to add to what Pers are saying is that and maybe to answer your question um in a different way is that you know user acquisition funding is is quite prevalent in the industry and that is not debt financing because they don't just get repaid interest um and costs. They get you know they get a revshare on your game um they get paid back plus a rev share on your game forever. So you're effectively giving up equity in your game for UA funding which is a different business model to what Piers is doing. Obviously, it's less certain, but um you're also giving away a huge chunk of your um your product.
Hi there. Thanks, guys. Super informative. Um not a question. I just wanted to flag that we're the games team from the certification unit at the BFI. So, if anyone's got any questions about coming to get your game certified, you can come come and talk to you guys obviously, but come talk to us, too. Thanks.

Hi. Um, I have two questions if that's okay. Uh, but I'll try and make them quick. Uh, the the first one I was wondering, um, is there any relevance for completely new businesses in this sort of model because it sounds like you need to have been around for a while to have earned those tax credits to be used as collateral.
No. So we will work with businesses when it's their first tax year, but of course we will will still be reliant on the opinion letter from the accountancy firm. So as long as I mean obviously and we will probably charge you more if I'm being frank than we would charge a business with a proven track record. I think it's unreasonable. Um but no, we will definitely lend to that. We also lend in the film and gaming uh sort of film and TV world and we're often dealing with independent producers who if you know anything about the film and TV world have uh relatively little covenant strength and that's being generous. Um, so we are used to lending to uh people who don't have a proven track record. Obviously, the rates we charge will probably reflect that. But no, it's definitely something we can do as long as we can get an opinion letter from an accountant stating that they,

you know, this is all expected.
Cool. And um, my second question was on the slide where you talked about being able to block the release of an IP. Yes.
And also having the shortfall security where you get the revenue. I just wondered are those two things contradictory because wouldn't you want the game to go out so you can get the revenue?
Very good point. No. So the the security is the sort of the nuclear option. I have you know I probably shouldn't say this but I've never enforced security. Uh if I'm enforcing security then we've all lost. Something's gone seriously wrong and you know it's it's not going to be a good situation. So the shortfall position is the initial uh position and and you know hopefully we can continue to have a good relationship if there's a shortfall position because you understand you haven't repaid the money that you owe us and we're saying well look we're just going to take the revenues until we've repaid and as soon as we've got them everything goes back to you and we step out. But the security option is is a sort of the backup position if for example even after the utilization of the shortfall position we still haven't been repaid or or quite frankly if you're just refusing to pay

us uh you know uh you know just being completely bloody minded and saying no we're not going to pay you then then obviously we can ensure the security but as I said I've never enforced it. We will if we have to but it is sort of the nuclear option and and we really don't want to be in a position to do that.
Thank you. I'm back. Hi. Um, more a comment than a um query. Um, it's possible to change your financial year end to uh have a shorter accounting period. So, normally it would be a 12-month accounting period and you claim your VGTR or VJ on the 12 months. However, you can shorten your accounting period on company's house to say six months and therefore bring forward the cash flows from the BGTR into smaller chunks. I don't know whether you want to talk talk to that at all, Nick.
Neil, can you just come up here and do it for me?
That was sort of that was my planned question for Nick if there hadn't been any questions from the floor. So, no, no, but thank you.
You're absolutely right where um where you've got enough dev spend um over a

12-month period. Um it's a lot. It's very we have clients that make a claim every three months actually. It's about the minimum um minimum time scale. So you'd have a claim to March 2024, a claim to June 2024, a claim to September 2024, and a claim to December. Now the cost of making a claim is preparing a set of accounts, which um is about, you know, 1,500 quid. And then the the claim itself, which you might let's call it two grand. So all in three and a half grand. And if the time value of money or it's cheaper than Pier's debt finance is um is that that you know the repayment you get every three months is is 100 grand plus then clearly if you're you know if you're only paying three and a half% interest over the course of the year on on your money then you're doing pretty well. It's cheaper than than a bank loan. Um so that is used by quite a few of our clients. And it's all about the timing as well. You you'd say well we're about we're we're we've released the game. We've stopped our spend. um we're now going to, you know, just there's not going to be any qualifying

spend after this point in time because it's going to be on user acquisition. Uh it's going to be on um promotion, marketing, which none of that is qualifying spend. You'd say, well, let's let's cut off our accounting period immediately after that to get the tax credit back in as soon as we can to repay the loan as soon as we can to reduce our our borrowing costs as much as possible. So, yeah, thanks for that question, Neil. Much appreciated. And am I right in saying you can bring your year end shorten your year end as often as you like, but you can only push it out once every five years. Is that right?
Correct. Yeah, you can push it out once every three years um to a maximum of 18 months. Um but you can have a year end of of a week and we've never seen that, but um it's it's theoretically possible.
Hi, I have a question for peers, I guess. Um so you mentioned the the valuation opinion that you get from the accountants,
the opinion letter. opinion letter quite so so I'm trying to understand the significance of that given you're essentially lending against you know effectively guaranteed cash flows whether that's from the government or or you know semig guaranteed if you will from from a I guess a publisher

developer who who's promising to pay you x amount by x date what what what's the significance of that that letter
the opinion letter is because as much as I'm sure you're all lovely people if you come to me and tell me that your tax credit is going to be X that's your opinion and and That's you as a producer and let's face it, you might have ulterior motives and telling me your tax credits at a certain level. Whereas by working with an accountant, a professional qualified accountant who owes us a duty of care because obviously the the third party element, then obviously then they obviously can't do that. So I know that that is what the tax credit is going to be. Not only do I know that, I have a professional opinion that says that. And if there were if there was if they would if that figure was to be materially wrong, we could potentially go after the accountant for negligence or potentially even try and get them struck off or something like that, which of course means that the accountant has a vested interest in only delivering very accurate opinion letters. Uh and as I said there's only about eight or nine firms that do this probably in the UK and therefore if they were to found out to be doing you know if if one financeier got burnt by an

accountancy firm no other finance he would accept an opinion letter from that accountancy firm. So does that sort of answer your question in terms of the certainty it gives us the value
of the tax credit? Yeah, it's the opinion of the spend that the company will be making and the tax credit that that it will then incur and and the time frames in which that will happen as well, of course.
Great. Well, I think we're um we're about there, aren't we? It's 12 12:45 lunchtime.
Thank you very much, everybody. Come up and see us in person. Yeah. Come and have a chat. Thank you. Well done. Yeah.