13 June 2012
Press ReleasesRoyal Assent to the Finance Act 2012 next month is set to prove crucial for small businesses that rely on a steady income from gaming machines, warns accountants and business advisers James Cowper Kreston.
Due to be implemented on 1 February 2013 under the Finance Act, Machine Games Duty (MGD) will replace Amusement Machine Licensing Duty (AMLD) and as a result takings from most machines will be exempt from VAT.
Ruth Corkin, Head of VAT Services at James Cowper Kreston said: “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.”
“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 used wholly for taxable activities and all the VAT on them can be recovered with no subsequent adjustment,” said Ruth.
The position becomes more complex when machines are purchased after the Finance Act receives Royal Assent on 17 July.
Ruth explained: “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 1 February 2013, HMRC will treat the purchase as being for mixed use. 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 (under £625 per month on average).
“Small businesses such as pubs and local takeaways could get caught out as they get used to the new system and everyone affected by the introduction of MGD would be well advised to consider their individual circumstances.”
Ruth added: “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.”
James Cowper Kreston recommends that businesses affected by the introduction of Machine Games Duty seek advice from their accountant or tax adviser.
Ruth Corkin, Head of VAT Services, James Cowper Kreston LLP, Tel +44 (0)1865 861166 or email
