Background
Machine Games Duty (MGD) was introduced on 1 February 2013 and replaces Amusement Machine Licence Duty and VAT on the machine takings.
Anyone responsible for premises where it is possible to play machines subject to MGD must register for MGD and make returns to HMRC. There is a full regime of penalties for failure to register and make returns.
Any gaming machine or a machine that provides a game that offers a prize greater than the cost of a play is subject to MGD. MGD does not apply to takings that are covered by other types of duty such as Betting Duty or Bingo Duty. There are some exemptions from the duty.
Full details of registration requirements and the duty are in Notice 452 Machine Games Duty available from the HMRC website.
A VAT trap?
Before 1 February 2013 takings from most gaming machines were subject to VAT. Where these takings are now subject to MGD they are exempt from VAT. This means that a business with a significant level of takings subject to MGD now has to consider whether it is partially exempt from VAT. If it is partially exempt it will have to restrict the amount of input VAT it can now recover, increasing its costs. This could be a nasty VAT trap for some businesses.
It is unlikely that businesses with a small amount of income subject to MGD will become partially exempt as they are likely to be below the de minimis threshold.
More information on partial exemption is in VAT Notice 706 Partial Exemption.
If you think your VAT position will be affected by Machine Games Duty and need advice please contact us.