Machine Games Duty (MGD) is a new tax which is being introduced on 1st of February 2013.  It will replace VAT currently charged on the income from gaming machines and Amusement Machine Licence Duty (AMLD).

Anyone wishing to make games available for play from this date must register with HMRC for the new duty.

MGD will need to be paid on the profits from most machine games. A machine game is a game played on a machine for a maximum cash prize greater than the cost to play. 

It should be noted that only certain categories of machine are liable for MGD, all others will remain under the existing VAT arrangements.

Which Categories are liable for MGD?

Cat B,C,D are all liable for machine games duty. (Excluding Crane/Grab games)

Who is responsible for MGD?

The law states that the person licensed to provide games for play (ie. permit holder) will be responsible for the payment of this new tax.  This means that you must register for MGD with HMRC before you intend to make games available for play. Failure to do so can result in penalties from HMRC. This registration process can be done online or on a paper form.

This new tax will be payable quarterly by the registered person and is managed in pretty much the same way as the VAT return.  This can be done Online or by a paper form, whichever you prefer.  Once the return has been made you will have 30 days after the end of the return period to make payment.  It is our understanding that HMRC will give you options for ways to pay.

It should be noted that although machine takings will be exempt from VAT, you will still be able to reclaim the VAT on the rental charge of the machines.  However you should check with your accountant on this matter as partial exemption rules for VAT reclaim may also apply.

How is MGD calculated?

MGD is due on the total net takings from the playing of dutiable machine games. Net takings means what is charged to play the games less the amount paid out as winnings. I.e. The contents of the cash box of the machine.

There are two rates for MGD a standard and lower rate. These are 20% and 5% respectively.

The 5% rate applies to machine games where the maximum stake is 10 pence and the biggest cash prize is £8.00.

The 20% rate applies to machine games where either the stake exceeds 10 pence or   any prize greater than £8.00 cash can be won.

The MGD Calculation is:

Net takings (gross takings less winnings) for standard rated machines x 20%

And/or

Net takings (gross takings less winnings) for lower rated machines x 5%

Losses may be carried forward between accounting periods.  This means that if the above calculation produces a negative figure you can offset that negative figure against liability on your next return.

Here’s an example.

Assuming a machine has Net earnings of £120.00 per week. The tax due is as follows:

At the standard rate MGD = £120.00 x 20% = £24.00.  Income after MGD of £96.00

At the lower rate MGD = £120.00 x 5% = £6.00 Income after MGD of £114.00

The MGD is retained by the registered person and added to the running total of MGD which is paid by the registered person following the MGD return to HMRC

Please note in the case of the coin push type games the cost of the prizes including VAT can be deducted before MGD is calculated.