The new Machine Games Duty, or MGD, is applied to games machines from 1 February and applies basically to all games machines where the player stands to win back a cash prize of more than the money "staked".
All affected licence holders should now be registered, and HM Revenue & Customs may charge penalties if they are not.
While the MGD is generally charged at 20% - just like VAT - it is not a "taxable supply" for VAT purposes but exempt, meaning that affected operators may now struggle to reclaim some or all of the VAT back on their costs.
Those traders who have been using a Flat Rate Scheme may be particularly badly affected, as HM Revenue & Customs has confirmed they will now have to account for VAT at the Flat Rate and MGD on machine takings.
This is because the Flat Rate is meant to cover ALL supplies made by a business, including those which are exempt. (Although regular readers may recall that HMRC lost their fight over bank interest - CIOT Challenges HMRC on VAT Flat Rate Scheme and Bank Interest)
In theory, HM Revenue & Customs could review the Flat Rate percentages in affected sectors and reduce them to reflect the reduced VAT that would be accounted for using the standard method. But they have confirmed that there is currently no intention to do so. HMRC points out that the Flat Rate Scheme is meant to simplify VAT for smaller traders rather than to save money and if the percentage now seems unfair, it is possible to leave the Scheme and go back to the 'normal' method of VAT accounting.
Rob McCann, director of The VAT People, said:
"The change from VAT to Machine Games Duty is causing a number of headaches for operators of gaming machines. The VAT implications of the change, of which the Flat Rate issue is one, are proving to be particularly troublesome and affected businesses must take steps to ensure that they do not incur a significant VAT bill as a result of the change".
For further information on the Flat Rate Scheme and registration, see Reminder - Games Machine Operators Have Until 11 January to Register for New Tax