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Taxing times: Machine Games Duty

Monday, 20 February 2012

Chris Haley, Managing Director of Dransfields, explains about the results of the government’s consultation in relation to gaming machine taxation.

The government has reaffirmed its intention to replace Amusement Machine Licence Duty and Vat on machine takings with a new tax, Machine Games Duty (MGD).
It will apply to any machine where the player inserts a stake into a machine in the hope of winning a cash prize higher than the stake (excepting the B3A machine).

The implementation date is set as 1 February, 2013, to enable taxpayers to prepare for the new tax and make necessary adjustments to accounting procedures.

The decision to remove machine income from the VAT regime will have implications for clubs in their Vat accounting when the new tax is implemented, as relatively complex partial exemption rules will apply.

It appears inevitable that there would be some kind of taxation change given the amount of Vat that the Treasury is losing through legal challenges to the current VAT regime applicable to gaming machines.

An example is the Rank plc/Linneweber fiscal neutrality challenge amounting to tens of millions of pounds in potential lost VAT revenue – although HM Revenue and Customs (HMRC) continues to dispute the case and the final result has yet to be decided.

The removal of the disproportionate licence duty charge of £2,18S per annum on standard B4 club gaming machines will assist clubs, as this huge cost is incurred regardless of how well the machine to which it relates actually performs.

Under MGD, the tax will be progressive and will be cash box based; in other words the tax payable will be directly related to machine performance with lower earning machines paying less.

Of course the concern now is the rate at which MGD will be set, and we won't know the rate until it is announced in the March 2012 Budget.

However, assuming the rate is not too high there will be an opportunity for clubs to increase the number of gaming machines in their premises as there will be no upfront licence fee to pay and they can choose to income share with their supplier rather than pay a fixed rental.

The club has the chance to receive income without any cost – other than the supply of electricity and carpet space! The main issue will be potential non recoverability of input tax relating to VAT exempt supplies, and this will require fairly complex calculations.

The government has at least listened to concerns surrounding B3A and has agreed to exempt the machine from MGD. This demonstrates that the Treasury understands the unique position that not-for-profit clubs, owned by their members, hold within the communities in which they are based and that the tax-free B3A machine provides a much needed source of revenue for clubs.

For the wider gaming machine industry there are some major concerns with the new machine games duty. For example at the moment all machines other than Category D (such as are found in seaside arcades) will pay the same rate of tax. Whilst it will please the bookmakers that their high-earning £100 per spin machines will pay the same rate of tax as a not-for-profit club, it is clearly not equitable, and expect to see some pressure for the Treasury to think again on MGD bandings.
Triennial Review

Before the introduction of the Gambling Act 2005, there was a system for the review of stakes and prizes for gaming machines that was known as the Triennial Review. This was a process by which the industry, government and stakeholders reviewed the top stake and prize for each category of machine.

The club gaming machine has not had an increase in its top prize for I5 years and it has been £250 since 1996. The proposal has therefore been put forward to increase the top prize to £400 with a maximum stake of £2 (currently £1).

The results of the review will not be known for some considerable time as the whole matter will be subject to a public consultation; any changes are expected to have an implementation date sometime in 2013.

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