Generous tax reliefs for the UK video games sector have been given full approval by the European Commission.

Chancellor George Osborne has welcomed the decision following an investigation into the relief by the Commission in order for it to receive state aid approval.

Announced at Budget 2012, the relief will provide support for the growing video games sector in the UK.

There are currently around 500 games development studios in the UK, employing around 9000 staff. In 2013 sales of video games in the UK totalled £2.19 billion.

Commenting on the decision by the Commission, the Chancellor said:

This is a key industry of the future and I want Britain to be one of its biggest centres. 95% of UK video games companies in the UK are SMEs. This relief is one of the most generous in the world and will help them to grow, creating new jobs for hardworking people.

The generous new corporate tax relief will come into effect from 1 April 2014, and it is estimated that the relief will provide around £35 million of support a year to the sector.

The relief enables companies to be eligible for a payable tax credit worth 25% of qualifying production costs, and builds on the successful model of the film tax relief which can be claimed on production expenditure in the UK, and the new High-End TV and animation tax reliefs.

In 2011 to 2012 the film tax relief provided more than £200 million of support to around 200 films. Since its introduction in 2007, direct employment within the sector has almost doubled and 1,050 film productions have made 1,900 claims, for a total £1.1 billion.

State aid approval has already been received for high-end television and animation, which were also announced at Budget 2012. These reliefs come into effect from 1 April 2013.

Creative industries Minister Ed Vaizey said:

This is tremendous news for the supremely talented and creative UK games sector. The government recognises the important contribution the industry makes to the economy and is committed to supporting the industry’s continued growth through a range of measures like these new tax reliefs.

Dr Jo Twist, CEO of UK games and interactive entertainment trade body, Ukie, added:

This is amazing news for the UK games and interactive entertainment sector and will help developers of all shapes and sizes to grow and make more games right here in the UK. This is the culmination of an immense amount of hard work and we’re delighted to have played our part in a collective effort to get the tax reliefs in place.

We now look forward to helping games businesses to access the relief and we’ll be working even harder to make the UK the best place in the world to make games. We’d like to thank UK government for their support, in particular HM Treasury and DCMS.

Dr Richard Wilson, CEO of TIGA, the association for games developers and digital publishers, said:

This is a coup for the government, a superb decision by the EU Commission, and magnificent news for the UK video games industry. TIGA has been campaigning for video games tax relief for seven years because it will create jobs, boost investment and enable the production of more British video games. Tax breaks for games production will help the UK fight its way back to the forefront of video game development. The video games tax relief will benefit a highly skilled, high-tech, R&D intensive and global export focused industry. TIGA now looks forward to working with the government and other interested parties on the implementation of the video games tax relief to ensure the full benefit of this landmark moment in the history of our industry.

The certification unit at the BFI is now accepting draft online applications for video games under the cultural test. Video games can qualify as British through the cultural test only. Full information can be found on the BFI website.