Section 191 Schedule 24: Machine Games Duty
Summary
1.Section 191 and Schedule 24 replace amusement machine licence duty (AMLD) with a new excise duty, machine games duty (MGD), and exempts the takings from machine games from a charge to VAT where those takings are liable to MGD.
Details of the Schedule
Part 1 Imposition of Machine Games Duty
2.Paragraph 2(1) of the Schedule defines a machine game as a game that is played on a machine for a prize regardless of whether the game is a game of chance or a game of skill.
3.Paragraphs 2(2) to (6) defines a dutiable machine game as one where any element of its prize is cash, or something that equates to cash, and the maximum amount offered as a cash prize is greater than the lowest charge to play the game on the machine. “Cash” is further defined as money or anything that may reasonably be considered to equate to money, including things of an intangible nature. Paragraph 2(5) provides that if an adult would reasonably assume that these conditions are met, the machine game will be taken to be a dutiable game, even where it does not in fact satisfy these tests. Paragraph 2(6) provides that in order to identify the lowest charge to play a game, for the purpose of determining whether it is a dutiable game, any offer that allows a player to play for nothing or at a reduced cost will be ignored and what would otherwise be the normal charge will be the amount that determines if it is a dutiable game.
4.Paragraphs 3(1) and (2) exclude certain games from the definition of a dutiable machine game if it is a specific form of gambling or there is a liability to, or specific exclusion from, another of the gambling duties. Paragraph 3(3) provides that where a game is played in a number of stages the game will be a dutiable machine game if any one stage on its own, or all the stages together, meet the definition of a dutiable machine game.
5.Paragraph 4 enables the Treasury to specify by order further criteria to take into account in deciding whether a particular game qualifies as a dutiable machine game, and in deciding what should count as a single go at playing any particular game or games.
6.Paragraph 5 makes provision for two types of machines to be defined by reference to the highest charge payable for playing a game and the highest cash prize that can be won from playing a game.
7.Paragraph 6 provides that in any accounting period MGD will be charged on the total net takings from all machines of each type, and prescribes how it will be calculated. Sub-paragraph (6) provides that if a machine changes type during an accounting period the net takings must be calculated separately for the periods before and after the change, and where this is not possible the net takings may be apportioned between the periods either side of the change.
8.Paragraph 7 provides the definition of a person’s net takings from a machine as those which are due to them for any period that they are liable for MGD in respect of the machine. Subject to certain stipulations which are specified in this paragraph, or which may be specified in secondary legislation, the net takings are:
the charges due from players in that period for playing dutiable machine games on the machine; less
the amounts that are paid out to players as prizes (including the value of non-cash prizes where such prizes are offered by machines also offering at least one cash prize greater than the amount paid to play) in that period as a result of playing dutiable machine games.
9.Paragraph 7(5) provides that any prizes that are paid out unlawfully cannot be treated as payouts when calculating the net takings.
10.Paragraph 7(6) provides for a just and reasonable apportionment of charges or prizes in circumstances where it is not reasonably practicable to make a precise attribution or apportionment. Sub-paragraph (8) gives a power to make regulations if necessary to make provision about when charges or prizes are taken to become due or paid out. Sub-paragraph (9) provides that where a game is played for free, or at a lower cost than would normally be the case, it is the lower charge that will be included in the net takings when the game is played. Sub-paragraph (10) provides that where a player is paid in the form of something that may be redeemed for a prize the prize is taken to be paid out at the time that the thing is redeemed for a prize.
11.Paragraph 8 provides that certain amounts must be disregarded (left out of account) when calculating the takings and payouts described at paragraph 7. This has the effect of creating exemptions in those circumstances. Further exemptions may be provided for by secondary legislation. A draft Treasury order was published for consultation in December 2011. The intention is to make the order under provisions of this paragraph and of Paragraph 39.
12.Paragraph 9 prescribes the standard and lower rates of MGD and makes provision for circumstances where there is a rate change during an accounting period to allow the old and new rates to be applied as appropriate.
13.Paragraph 10 provides that where a person’s duty calculation results in a negative amount their liability for that period will be zero, and the negative amount will be carried forward and offset against their liability in the next period. Negative amounts will continue to be carried forward to future periods until such time as the duty calculation results in a positive amount but no repayments or refunds will be made in respect of a negative amount.
14.Paragraph 11 provides that a person is liable for MGD at any time that they are responsible for any premises where dutiable machine games are available for play on a machine that is not an excluded machine. Where there is more than one person who satisfies the conditions specified in paragraph 11(1) each shall be jointly and severally liable for the duty.
15.Paragraph 12 provides the definition of a responsible person for the purposes of determining liability under paragraph 11. A person is defined as a responsible person if they are registered, or registrable, in respect of those premises where machines are available for play. When one of these persons registers for MGD the others will have no liability (further provision about registration is found at paragraphs 20 – 24).
16.Paragraph 13 defines an excluded dual-use machine as one that can be used for playing dutiable machine games and for some other unrelated purpose. It only qualifies as an excluded machine if:
it is not designed, adapted, or presented to facilitate its use for playing dutiable machine games, or draw attention to such a possibility; or
the responsible person is unaware, and could not reasonably be expected to be aware, that it is designed, adapted, or presented in such a way.
17.Paragraph 14 provides that MGD will have quarterly accounting periods and that HMRC may:
direct the day on which an accounting period will begin;
agree to accounting periods of other than exactly 3 months with starting days other than the first day of the month;
make transitional arrangements that will allow periods of other than 3 months to be treated as accounting periods in circumstances where someone registers, deregisters or is moving from standard to non-standard periods; and
specify shorter accounting periods in any case where they believe that a person may not discharge their liabilities.
18.Paragraph 15 provides for the valuation of prizes and includes specific valuation provisions where the prize consists of foreign currency or something, for example, a voucher that may be exchanged for cash.
19.Paragraph 15(4) provides that where a prize consists of foreign currency the value of that prize will be calculated on the last day of an accounting period using the London closing rate from the day before.
20.Paragraphs 15(5) to 15(7) provide that where the prize is a non-cash prize that was obtained from an unconnected third party its value will be the cost of obtaining it from that party. If the prize was obtained from a connected party its value will be the lesser of the amount paid to that connected party, or the amount it would have cost if obtained from an unconnected party. If that cost cannot be reasonably determined it shall be given a value that is just and reasonable. Where the cost of a prize includes VAT paragraph 15(8) provides that the VAT must be included in the value of the prize.
21.Paragraph 16 makes provision for the valuation of the amounts charged for playing a game. Where the charge to play is unclear, or where the charge allows more than one play or covers something in addition to game play (a “composite charge”), this paragraph allows for the charge for playing a game to be determined on a just and reasonable basis. Paragraphs 16(6) and 16(7) provide that in specified, limited circumstances a charge will be attributed to what would otherwise be presented as a free play, or reduced charge. If all of the conditions in sub-paragraph (6) are met the amount of the charge that is due will be the amount that would have been charged in the absence of any offer.
22.Paragraph 17 provides that HMRC is responsible for the collection and management of machine games duty.
23.Paragraphs 18 and 19 provide for HMRC to set out the requirements in respect of MGD returns, payments and assessments in secondary legislation, and that the excise duty assessment provisions in the Finance Act 1994 apply in relation to MGD. A draft of the regulations was published for consultation in February 2012.
24.Paragraphs 20 to 25 make provision about registration and registrable persons, and the publication of the MGD register. Paragraph 20 requires that HMRC maintain a register, the MGD register, and provides that subject to the exclusion described in paragraph 20(5) no-one may make a machine with dutiable machine games on it available for play on any premises unless a registrable person is registered in respect of those premises. The definitions and descriptions of each of these registrable persons are provided at paragraphs 21 and 22.
25.Paragraph 21(1) provides that the holder of a relevant permit or licence (under paragraph 22) is a registrable person. Where there is a licence or permit specified in that paragraph the holder must register in respect of those premises. Paragraph 21(2) makes provision in respect of tenanted pubs such that the tenant is registrable regardless of whether someone else holds the alcohol licence. Paragraph 21(3) makes provision about registrable persons in respect of travelling fairs and paragraphs 21(4) and 21(5) makes provision about registrable persons in respect of premises that are not covered by paragraphs 21(1) to 21(3).
26.Paragraph 22 defines the licences and permits that are described as “relevant licences or permits” for the purposes of paragraph 21.
27.Paragraph 23 makes provision, and describes the process that HMRC must follow, for compulsory registration when dutiable machine games are available for play on premises for which there is no registration in place. HMRC may give a registration notice to any person believed to be a registrable person in respect of the premises. Paragraphs 23(6) and 23(7) provide for an appeals process against the registration notice and if no appeal is made within the specified time or it is dismissed or withdrawn, HMRC may proceed to register the person in respect of the premises.
28.Paragraph 24 provides for HMRC to set out the procedures and requirements for registration and de-registration in secondary legislation, and prescribes particular aspects and conditions of the registration process that may be provided by those regulations. In particular, paragraphs 24(4), 24(5) and 24(6) make provision in relation to the payment of security, the appointment of a tax representative, and group registrations. A draft of the regulations was published for consultation in February 2012.
29.Paragraph 25 makes provision about the information to be recorded on the MGD register and the conditions that may be attached to its publication.
30.Paragraph 26 provides that in certain circumstances HMRC may give a notice to any person who is believed to be entitled to a share of the takings from a machine on which dutiable machine games are played. The person is referred to in the legislation as a “profit-sharer”. That person may become liable to account for MGD for the period specified in the notice. This liability may only be imposed if it appears that MGD may be chargeable; no-one is registered in respect of the premises; and the responsible persons are not known to HMRC, or are known but overseas. Unless the person, having received a notice from HMRC, can provide HMRC with sufficient information to identify a responsible person, or show that they had taken all reasonable steps to determine that someone was registered in respect of the premises, HMRC may make an assessment for MGD that will be based on that person’s share of the machine’s takings. Any assessment under this paragraph will be subject to the excise duty assessments and appeals provisions of the Finance Act 1994. If HMRC subsequently identify someone who is responsible, any assessment made against them must take account of the amount that has already been recovered from the other person, but that other person is not entitled to any repayment of the amount for which he was assessed.
31.Paragraph 27 makes provision for the HMRC decisions listed in paragraph 27(2) to be treated as if they were appealable decisions under section 13A of the Finance Act 1994 and covered by the reviews and appeals provisions of that Act.
32.Paragraph 28 provides that the provisions of the Finance Act 2009 that allow for interest to be charged on unpaid duty and assessments may be applied to MGD.
33.Paragraphs 29 to 35 provide that MGD shall become subject to the penalty provisions that already exist in other legislation and which are specified in each of those paragraphs.
34.Paragraph 36 provides that a machine is liable to forfeiture in circumstances where it is, was or is about to be made available for play for dutiable machine games, and either :
there is no registration for the premises and there is a serious risk that MGD will not be paid, or
MGD that is due has not been paid in respect of the machine.
35.Paragraph 37 provides that it is an offence to be knowingly involved in the fraudulent evasion of MGD and describes the penalties that may apply to those who are guilty. Paragraph 37(4) qualifies the prescribed penalty provision of paragraph 37(2)(b) to provide that where a person is found guilty on summary conviction of an offence that is committed in Northern Ireland, or in England and Wales before the commencement of s154(1) of the Criminal Justice Act 2003, the maximum term of imprisonment of twelve months that is specified at paragraph 37(2)(b) shall be read as six months. Paragraph 37(5) provides that where fraudulent evasion of MGD is committed by a body corporate, the directors of that body shall be deemed to be guilty of that offence unless it can be proved that they did not commit, or connive to commit, the offence and that they acted with appropriate due diligence with regard to their role to ensure that no offence was committed.
36.Paragraph 38 adds MGD to the list of betting and gaming duties in section 31 of the Betting and Gaming Duties Act 1981 (BGDA) and provides that an officer of HMRC does not commit an offence when properly undertaking duties in respect of MGD.
37.Paragraph 39 makes provision about orders and regulations that may be made under Part 1 (paragraphs 1-52) of this Schedule and prescribes the Parliamentary procedures that must be followed in respect of the particular statutory instruments containing those orders or regulations.
38.Paragraphs 40(1) and 40(2) provide that HMRC may direct in a published notice that the registration provisions of paragraph 24 shall apply in advance of the implementation of MGD and that that notice may modify those provisions for the transitional period.
39.Paragraph 40(3) provides for transitional arrangements in respect of any person who has been directed, or has been approved, to use accounting periods other than the standard period of 3 consecutive months. These arrangements give the flexibility to provide that the first accounting period for those persons shall start on the MGD go-live date and end on whichever date is appropriate to allow them to then move to the accounting periods that have been directed or approved.
40.Paragraph 41 provides that the definition of “the revenue trade provisions of the customs and excise acts” in the Customs and Excise Management Act 1979 (CEMA) is amended to include the provisions of Part 1 of this Schedule, and that the definition of “revenue trader” in that Act is amended to include those who are responsible persons within the meaning of this Schedule.
41.Paragraph 42(1) makes a consequential amendment to CEMA to substitute a new section 118BC. This new section provides that HMRC’s powers of entry and inspection applying in relation to gaming duty shall apply also in relation to MGD, and provides a power to open machines. New sections 118BC (2) and (3) specify what may be inspected and when the inspection may take place, and prescribe the circumstances under which entry or inspection is not permitted. New section 118BC(4) provides that HMRC may require a relevant person to open or operate any relevant equipment and to carry out other operations so that they may determine whether there is any duty liability, and if so, how much. New sections 118BC(5) and (6) define the persons and equipment that may be subject to the inspection powers of this section, while new section 118BC(7) defines “section 10 gaming” by reference to the Finance Act 1997 and prescribes that “premises where a machine is located” are to be interpreted by reference to Part 1 of this Schedule.
42.Paragraph 42(2) provides that civil penalties under the Finance Act 1994 will apply where there is a failure to open relevant equipment for inspection and perform the operations required under new section 118BC.
43.Paragraph 43 amends section 2 of the BGDA to remove the reference to gaming machines as a consequence of the introduction of MGD and the abolition of AMLD.
44.Paragraph 44 amends section 26H BGDA, which provides for exemptions from remote gaming duty (RGD) in circumstances where another gambling tax applies, or would apply but for an express exception.
45.Paragraph 45 inserts a reference to MGD in Schedule A1(7) to BGDA, a new Schedule introduced by the Finance Act 2012. Paragraph 7 of that Schedule stipulates that there will be no payment of double tax relief for general betting duty or pool betting duty where there has been a breach of statutory obligations in respect of the betting and gaming duties listed there.
46.Paragraph 46 inserts a reference to MGD in Schedule 4B(7) to BGDA, a new Schedule introduced by the Finance Act 2012. Paragraph 7 of that Schedule that there will be no payment of double tax relief for remote gaming duty where there has been a breach of statutory obligations in respect of the betting and gaming duties listed there.
47.Paragraph 47 amends the Finance Act 1994 to make MGD subject to the excise duty assessment provisions in section 12 of that Act.
48.Paragraph 48 amends section 10 of the Finance Act 1997, which provides for exemptions from gaming duty, by substituting a reference to MGD for the previous reference to AMLD.
49.Paragraph 49 amends the Borders, Citizenship and Immigration Act 2009 to include MGD in the list of excise duties which are not functions of the Director of Border Revenue.
50.Paragraphs 50 and 51 provide the definitions of specific terms and expressions for the purposes of Part 1 of this Schedule.
Part 2 Removal of Amusement Machine Licence Duty
51.Paragraphs 53 and 54 amend BGDA to omit those provisions that deal specifically with the imposition and administration of AMLD, and remove references to AMLD from those provisions that deal with the general administration of betting and gaming duties.
52.Paragraph 55 omits the reference to an amusement machine licence from the provisions in CEMA about the payment of excise licences by cheque.
53.Paragraph 56 omits the provision in the Finance Act 1997 that provides an exemption from gaming duty by reference to AMLD.
54.Paragraph 57 removes the reference to AMLD from the table of taxes and duties that are subject to penalties for failure to notify etc. in Schedule 41 to the Finance Act 2008.
55.Paragraph 58 removes the reference to AMLD from the list of excise duties for which the Director of Border Revenue has no responsibility to reflect the fact that AMLD is being removed.
56.Paragraph 59 provides a formula which will achieve refunds in respect of the whole months and days which are the subject of the portion of the licence unexpired at the MGD go-live date.
57.Paragraph 59(4) provides that where AMLD is being paid in monthly instalments there may be a liability to pay an amount in respect of any days that form a part-month before the go-live date.
58.Paragraph 59 (5) provides that any person who is entitled to a repayment of more than £10 will be entitled to interest on that amount if they have not been repaid within 90 days of go-live and have notified HMRC of that fact. Interest will be calculated until the day the repayment is made at the rate specified for excise duty payments under s197 of the Finance Act 1996.
59.Paragraph 60 provides that where a licence expires in the final month of AMLD an amount will be payable in respect of the days up to go-live (a “daily rate”). Paragraph 60(6) provides that this rate will be 1/365th of the amount charged for a twelve-month licence. If payment is made before its expiry date, the previous licence will be treated as extended to go-live.
60.Paragraphs 60(7) and (8) provide that the standard requirements for the payment of AMLD and for the enforcement and administration of AMLD shall continue to apply during the 30 day period before go-live. If any machines (for which an AMLD licence is required) are provided for play without a licence in this 30 day period paragraph 60(9) provides that the amount of any assessment for that period will be calculated by reference to 1/365th of the amount charged for a twelve-month licence.
61.Paragraph 61 makes provision in respect of licences that will be granted less than one month before MGD go-live. For licences granted in this period this paragraph disapplies those provisions in BGDA that stipulate the minimum and maximum periods for which a licence application may be made, and provides that these licences will expire on the day before go-live. Paragraph 61(5) provides that HMRC may direct that the existing administrative arrangements for AMLD shall apply in relation to any final month licences as they do to other licences.
62.Paragraph 62 provides that any legislation that is repealed by Part 2 of this Schedule will continue to have effect after go-live date in relation to things that happened before go-live date.
63.Paragraph 62(3) provides that for assessments to AMLD as a result of a default in the period prior to go-live the assessment shall be made using the amounts of AMLD that were in force the day before the go-live date.
Part 3 VAT Exemption
64.Paragraph 63 substitutes a new section 23 and inserts an additional section 23A into the Value Added Tax Act 1994 (VATA). The new section 23 provides a mechanism for valuing supplies involving relevant machine games, which are defined in section 23A.
65.New Section 23(1) and (2) provide that the amount a person pays to play a relevant machine game is treated as the consideration for a supply of services.
66.Section 23(3), (4) and (5) provide that the value of such supplies is the takings received, less the amount of the winnings paid out, excluding any winnings paid to the supplier or a person acting on their behalf.
67.Section 23(6), (7), (8) and (9) provide for the valuation of tokens inserted into a machine to play a relevant machine game or provided by way of winnings from such a game. Games played solely for prizes consisting of the opportunity to play the game again are not relevant machine games. However a token that enables the machine to be played again may be one of a number of prizes offered by a relevant machine game. Where that is the case, the value of the token is deducted in calculating the value of the relevant supply.
68.Section 23(10) provides that if it is not reasonably practicable for takings and winnings to be attributed to relevant machine games, or apportioned between relevant machine games and other games, the attribution or apportionment is to be carried out on a just and reasonable basis.
69.New Section 23A(1) and (2) define a relevant machine game as a game played on a machine for a prize, unless it is liable to, or is excluded from, specified gambling duties. Relevant machine games may be games of skill, games of chance, or games that involve elements of both skill and chance.
70.Section 23A(3) includes relevant definitions. A “prize” does not include the opportunity to play the game again.
71.Paragraph 64 amends Group 4 (betting, gaming and lotteries) in Part 2 of Schedule 9 (exemptions) to VATA.
72.Paragraph 64 (2) inserts item 1A, which exempts the provision of facilities for playing dutiable machine games from VAT, but only insofar as the takings and payouts from those games are taken into account in determining the charge to MGD. Dutiable machine games may be games of skill, games of chance, or games that involve elements of both skill and chance.
73.Paragraph 64(3) removes Note (1)(d), which excludes gaming machines from exemption under item 1 (exemption of the supply of facilities for placing bets or for playing games of chance for a prize). The introduction of MGD means that it is necessary for the exclusion from item 1 to be framed in different terms.
74.Paragraph 64 (4) inserts Note (1A) which excludes the provision of facilities from item 1 to the extent that those facilities are used to play a relevant machine game.
75.The amendments to Group 4 mean that the provision of facilities for playing games of chance which are not relevant machine games will be exempt from VAT under item 1. The provision of facilities for playing dutiable machine games will be exempt from VAT under item 1A, insofar as the takings and payouts from those games are taken into account in determining the charge to MGD. Other machine games will not be exempt from VAT under Group 4.
76.Paragraph 65 amends paragraph 9 (power to require opening of gaming machines) of Schedule 11 (administration, collection and enforcement) to VATA by substituting a new paragraph (a) which entitles an authorised person to require that a machine on which relevant machine games are capable of being played be opened.
Part 4: Miscellaneous
77.Paragraph 66 provides that this Schedule has effect in relation to the playing of machine games, the provision of amusement machines and supplies made on or after 1 February 2013.
78.Paragraph 67 provides for the Treasury to make transitional or saving provisions for the removal of AMLD and introduction of MGD and prescribes the Parliamentary procedures that must be followed in respect of the statutory instruments containing the regulations.
Background Note
79.This measure aims to put tax revenues from gaming machines on a more sustainable footing. The VAT treatment of gaming machines has been challenged in the Courts. Introducing MGD and exempting dutiable machine games from VAT will protect tax revenues going forward, and will ensure that operators of gaming machines continue to make a fair contribution to tax receipts.
80.MGD also supports the Government’s objective of a fairer tax system by ensuring the taxation of dutiable machine games will be more closely linked to machine takings.
81.MGD will be charged on the net takings from games played on machines where those games offer the player the opportunity to win a cash prize whose value is greater than the cost to play the game once.
82.The rate of MGD that is charged will depend on the maximum cost to play a single game and the maximum cash prize offered for a single game.
83.The standard rate of MGD will be charged at 20 per cent on the takings of dutiable machine games where the maximum cost to play a single game is more than 10p or the maximum cash prize offered for a single game is more than £8. The lower rate of MGD will be charged at 5 per cent on the takings from other dutiable machine games. If a single machine offers games in each category, all of the takings will be charged at the standard rate.
84.If a single machine offers a mixture of dutiable machine games and other services or facilities, only the takings from the dutiable machine games will be liable to MGD.
85.The introduction of MGD and the replacement of AMLD will apply to the playing of machine games from 1 February 2013 and Regulations will be made to allow people to register for MGD before then. The VAT changes will apply to supplies made on or after 1 February 2013.
