Gaming machine operators in the UK are being urged to ensure they are aware of how the introduction of Machine Games Duty will impact their business.
Due to be implemented on February 1, 2013, MGD will replace Amusement Machine Licensing Duty and, as a result, most machines will be exempt from VAT. Royal Assent to the Finance Act 2012 will see these changes come into force.
“From February MGD will be charged on the playing of dutiable machine games, such as fruit machines and quiz machines, where customers pay to play in the hope they will win a cash prize. It is not payable on machines that only offer non-cash prizes,” said Ruth Corkin, head of VAT services at account and business adviser James Cowper. “Businesses registered for VAT will become either fully or partially exempt.
“If a gaming machine is acquired before the date of Royal Assent by a business that is currently fully taxable, HMRC’s view is that the machines would be sued wholly for taxable activities and all the VAT on them can be recovered with no subsequent adjustment.”
According to Corkin, the position becomes more complex when machines are purchased after the Finance Act receives Royal Assent on July 17. From July 17 to February next year, VAT claimable will only be in relation to the amount of time the machine is in operation before it becomes completely VAT exempt.
“Where machines are purchased after Royal Assent, but before February 1, 2013, HMRC will treat the purchase as being for mixed use,” she explained. “In other words it will be partly taxable and partly exempt, and input VAT would be apportioned under a partial exemption method. HMRC will also see the machines as relating to exempt supplies if they are not put into use before February 2013. The input tax incurred is then not usually recoverable, unless it is so small that it is de minimis.”
Small businesses, such as pubs and local takeaways, could be “caught out” as they get used to the new system so those affected ought to consider their individual circumstances.
“HMRC holds lists of traders with dutiable machine games so is likely to form a task force and actively visit premises after next February to ensure businesses are complying with the new rules,” added Corkin.
