Partner – Simia Fara & Company
Board Game Business Accountancy 101
Martin Anderton is an admin of Board Game Trading and Chat UK (Huge board gaming Facebook group) and a partner in a UK accountancy firm.
Martin has worked with a number of board game designers who have used his services as an accountant to make sure all their financials for publishing games are above board. I spoke to Martin to get a handle on what UK small publishers should be doing to help themselves. Martin has been amazing and given some really valuable, deep advice that if you’re starting a new board game business in the UK you’ll really want to read.
Hi Martin! Thanks for joining me, and answering my questions on the number crunching side of games. As you will probably tell, numbers aren’t my strongest point. So I’m hoping you’ll be able to help me and others learn a few things when we’re starting and growing our small board game businesses.
I read a bit about liability of companies before I launched the Kickstarter campaign for Hero Master: An Epic Game of Epic Fails, and decided I should probably become a Limited Company, but I’m still not really sure if it was the right move. When would you advise a small board game publisher or new start up to go LTD?
Hi Jamie, thank you for the invitation to contribute, happy to assist in any way I can. I think it’s fair to say it’s very rare to find creatives, in any industry, with the discipline or interest in the administration or financial structures in which to hang their cherished ideas and projects. Its therefore common to seek advice on this matters as an afterthought, I wouldn’t feel too bad about any confusion you have yourself as a result.
I would urge anyone considering a foray into business, in any form, to seek advice at a very early stage on these matters from a professional, it saves time and precious resources, and it can be just as important as choosing the right fulfilment partner. The old saying of ‘a stitch in time save nine’ is very true in this respect
Most people in your position would naturally gravitate towards forming a Limited company to house their project without really understanding why, so let’s pretend we had sat down on day one so I can lay out your options for you:
A Limited company, at least in the UK, means that those that operate within one enjoy a Limitation of Liability. The company is a separate entity to the owners and those that manage it, its liabilities are its and can’t, unless you have failed in some way in your duties as an officer of the company, follow you home and becomes personal liabilities
It’s this shell of protection that is attractive to people that are suffering the costs and risks associated in the manufacture and distribution of a finished product without the guarantee of sufficient funds to meet their commitments
This more often than not manifests at the back end of the project
It has successfully funded but something has gone wrong in the costing of the units to be produced or in the costs associated in distribution worldwide, and as a result you suddenly find yourself with a shortfall in funding with bills to be paid.
If you have not sort a Limited company to house the project then this could be personally ruinous, contracts signed by the company, unless you have agreed to give personal guarantees as an individual, are its responsibility, and if it is not able to meet them then the company can be placed into liquidation which allows any debt to die with it
Glory to Rome is a famous example of how simple miscalculations at the beginning of a project before launch (in that case for international shipping) can lead to horrendous personal consequences, a more recent example of risks in this respect would be the fiasco with Unbroken.
Another reason to house your ideas within a Limited company would be public projection and promotion. A Limited company implies that people are dealing with an organisation as opposed to an individual that operates from their spare bedroom, and as you grow in an industry where self-promotion is all, incremental benefits of perception can be important.
The rewards here are perhaps esoteric, but should not be ignored, its just a fact that people tend to have more confidence in Joe Bloggs Limited then they do in poor old Joe Bloggs.
As you grow, and perhaps add several tittles to your stable within the company, it is also easier for a bigger player to come in and buy you if you are a corporate entity, there are all sorts of tax benefits in the shares of a company being purchased which contains those titles then it would be from an individual, and those benefits exist for both the purchaser as well as the purchased, the utilisation of Entrepreneurial relief at attractive rates of taxation for example.
If your project is a collaborative effort between a number of people it is easier through a company to define that partnership by way of the issue of shares as a mathematic expression of who brings what to the table. The shares of a company define ownership, which then potentially expresses the reward each of the owners should expect in a buyout situation or in taking profits from the company by way of dividends to be distributed.
Lastly, and in light of the above it should always be considered last because the benefits highlighted above may very well exceed it as a reason, there are operational benefits in tax exposure by operating in a Limited company. Corporation Tax is what a company pays on its profits (and hopefully there are some) and that in the UK is 19% at the time of writing this, with no national insurance.
That is attractive when considered that the same profits would be assessed at at least 20% outside of a company with 9% in addition for national insurance, and at higher rates that tax rate increases to 40% tax.
If your model is to retain profits for reinvestment in the next project then the company is the clear route to take, the profits thus invested have already been taxed at that 19% rate leaving more retained cash after tax
If the profits are to be drawn by way of dividends rather than retained within the business then additional tax is paid by the recipient of those dividends in addition to the initial corporation tax paid, again, at the time of writing, lower rate tax payers have a tax free dividend band available to them with the balance being taxed at only 7.5%, of 32.5% if they are higher rate tax payers
Further tax efficiencies can be gained in dividing your share holding up, with a spouse for example, so that higher rates of tax suffered by you as an individual can be avoided by distribution the income across your tax affairs as a couple, keeping you both below the higher rate bands.
This also rewards your long suffering partner in life for listening to you blather on about your idea for years, emotionally supporting you through the process and providing unpaid logistical support!
I want to talk about VAT, I mean I don’t… but we probably should…
What’s the threshold for VAT, and is there anything special we should know about? For example, during the Kickstarter, not only did the money for the game run through my business but also for shipping. Even though this money would be going straight back out, it still counted as revenue and I needed to check myself against the VAT threshold for it.
What do we have to be wary of?
The threshold for VAT in the UK is, at the time of writing, £ 85,000, and it is always your responsibility to know if and when you are in breach of it, so keeping a careful eye on your financials is extremely important. It is also important to understand this in your economic model, to suddenly realise the pledge level for a unit now has VAT to pay on it can leave you 20% less then you had budgeted for and could cause your project, and company, to fail.
The timing of multiple projects over a calendar year is also important, the assessment of the threshold is for a 365 period, not project by project, so two or three quick releases in the same year could tip you unknowingly over the edge
You do not want to volunteer to be VAT registered if you can avoid it as you are dealing with members of the public in the main that cannot claim the VAT back, which makes your product 20% more expensive for them to back then it needs to. Retailers will be in the main VAT registered themselves so it will make no difference to them as they can claim any VAT element back in their own VAT returns.
Fortunately a bunch of my income comes from the USA, which isn’t counted towards VAT, and it means I haven’t had to register as VAT. I wonder how many people know that their income is only based on European income. Will this change at all post-Brexit?
Sales to any countries outside of the EU zone (which the UK currently still remains within and probably will still do so during ant transition period in the coming years) are exempt from UK VAT. Sales within the EU zone for the supply of physical goods are not.
Will this change post Brexit? The simple answer to that is I don’t know, and I don’t think anyone is in a position to comment on that at the moment, it will very much depend whether a trade deal is reached and in which form it will take if it is!
If I had the answer to that one I would be a very rich man indeed I suspect.
When importing to the UK from say a Chinese Manufacturer, what fees and taxes should British people expect to pay. Is there anything they need to set up or clear with their accountant beforehand?
If you need to pay import duty on goods from China, you’ll be contacted by your chosen courier and told how to pay. You’ll usually have 3 weeks to pay any charges, before they send the consignment or parcel back. As your parcel will be from outside the EU, you may be charged VAT or excise duty on it based on its value including the import duty. It will be the job of your chosen courier to fully advise on this but it’s important to get an idea at the start of what those costs will be so they can be built in to your budgets.
Now let’s talk about the good stuff… Are there any grants, schemes or tax breaks that small businesses, particularly people making board games can take advantage of?
If you have developed a project that can be truly said to be ground breaking or innovative in the genre, some mechanism or mechanical element which is new, then there are research and development claims through a Limited company which makes the costs of development very tax efficient, and if the circumstances are right can lead to receipt back from HMRC of a cash sum as a percentage of those costs when the company tax return is submitted.
There is of course nothing new under the sun, but if you feel that you do have something like this discussion with your accountant at an early stage is important so those costs can be identified and isolated for quantification. There are also specialists in this area who will act for you in such a matter on either a percentage or fixed fee basis
For the small player there will not be much else if this is the start of your journey, most governmental and council grants are dependent on encouragement of trade for the UK or the establishment of jobs in deprived areas, unfortunately the board game community does not enjoy the same encouragements as the Film Industry and other creative arts, but you never know what is in the future if the hobby continues to grow
There’s a myth that Kickstarter funds are not taxable, because it’s fund raising. I’d love you to clear that up for us?
Kickstarter funds received are absolutely treated by the tax authorities as income. Whilst not a store it is a pre-order system once funded, the receipt of it is income and definitely become taxable, which I believe is the treatment regardless of where you are in the world
The real question is about when the income is to be recognised.
When dealing with companies around the world, I ended up dealing in other currencies, particularly USD. I found Tranferwise was a good place to hold and change currency, but have you got any tips on how to manage that, and if it affects anything with business end of year accounts?
Currency needs to be seen as a commodity as much as anything else, the fluctuations in the markets can generate either profits or losses in conversion depending on how well you have read the market and how quickly you have been able to act
If you have been paid in dollars and your costs to manufacture are in dollars it would be well worth your while to arrange a dollar account with your bank so you do not have to convert at all and suffer the fees in doing so. If there is unusual strength in the currency you control consider paying up front to take advantage on that if your costs are fixed with the manufacturers to get more bang for your buck
In short explore how best to keep your cash in whatever form you control it as flexible as possible in the platform it is housed, and make timely decisions on when you chose to convert.
What’s your favourite colour Meeple?
Easy, Red. The colour of blood and victory!
You can contact Martin Anderton and the Simia Farra & Company for accountancy services at: firstname.lastname@example.org
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