Amusement arcades and VAT
You will have to register for VAT if your taxable sales are likely to be above the current VAT threshold. You will then have to account for VAT on the 'taxable take' of any machines that you don't have to pay Machine Games Duty (MGD) on. You may find that in practice you'll have to pay MGD on most of your machines. MGD applies to all machines that give a cash prize that's more than the cost of playing the game. MGD replaced both Amusement Machine Licensing Duty (AMLD) and VAT.
There are two rates of MGD:
- the standard rate of 20%
- a lower rate of 5% for machine games with a maximum stake of 10 pence and a maximum cash prize of £8.00
(The higher rate of MGD in force from March 2015 only applies to Category B2 machines that arcades aren't allowed to offer.)
MGD is due on the net takings from relevant machines - this means the gross takings, less the amount paid out as winnings. You pay MGD to HM Revenue & Customs every quarter.
You'll also probably be paying some VAT on your non-cash prize machines. Because most gaming machine takings aren't liable to VAT any longer, you'll probably be exempt or partially exempt for VAT purposes unless you run a family entertainment centre where the majority of machines are 'amusement' type rather than gaming machines and so outside the scope of MGD. It's also quite likely that you won't be able to reclaim the VAT on machines you buy in full, or at all. You can find out more on the Gov.uk website.
Businesses that are having trouble making their VAT payments, or are worried that future payments will cause them problems, can ask for help from the HMRC Business Payment Support Service. If your business needs this financial assistance to tide it over, HMRC will look at your situation and discuss temporary options that could help out. These could include letting you make payments over a longer period and waiving late payment surcharges. To discuss payment problems with HMRC you can call the Business Payment Support Service Helpline on 0300 200 3835.
Contact the VAT Helpline on 0300 200 3700 to request further guidance and helpful leaflets including VAT Notice 700/1, Should I be Registered for VAT? and VAT Notice 701/29, How VAT applies to betting, gaming and lotteries. You can also download VAT information publications from the Gov.uk website.
The helpline will also be able to advise you on how to calculate your taxable take on a business-wide basis, rather than for each individual machine.
You will have estimated your monthly sales income. Now decide whether you must register for VAT. If so estimate the approximate amount of VAT that you will have to pay every quarter.
Making Tax Digital (MTD) for VAT
Under HMRC's Making Tax Digital initiative, VAT-registered businesses with taxable turnover above the VAT threshold must keep records digitally and use special software to submit their VAT returns. You can find out more about MTD on the Gov.uk website.
Alternative flat rate scheme
You might be interested in an optional flat rate scheme (FRS) for eligible small businesses. Under this scheme you continue to issue tax invoices to VAT registered customers, but the VAT payable every quarter is calculated as a percentage of your VAT-inclusive turnover. You apply the appropriate flat rate percentage for your type of business. This scheme cannot be used with the retail schemes, the margin scheme for secondhand goods or the cash accounting scheme. You can find full details of the FRS, who can use it, and the flat rate percentages in VAT Notice 733, Flat rate scheme for small businesses. It will help you to decide whether or not the scheme is suitable for you.