Find out how to apply VAT to betting, gaming, bingo, lotteries and machine games.
This notice cancels and replaces Notice 701/29 (February 2013). Details of any changes to the previous version can be found in paragraph 1.2 of this notice.
1.1 What this notice is about
This notice explains how VAT applies to betting and gaming in general. It also explains how VAT applies to bingo, lotteries, and machine games.
1.2 What’s changed
The technical content of this notice remains the same but some minor changes have been made to paragraphs 1, 1.4, 2.2, 2.6, 3.1, 4.7, 4.8, 9.2, 11.2, 11.3, 11.4 and 11.5.
1.3 The law
The relevant VAT law is Group 4, Schedule 9 to, and sections 23 and 23A of, the Value Added Tax Act 1994.
1.4 Where to find other information on betting, gaming and lotteries
Related notices are
You can also refer to:
2.1 The liability of betting and gaming
The provision of facilities for betting, which includes pool betting, or for playing games of chance, is normally exempt from VAT but there are some important exceptions. You will find out more about these in paragraph 2.2. From 29 April 2009 all participation fees in relation to games of equal chance for a prize became VAT exempt.
2.2 What’s not covered by the exemption
Some services although provided alongside betting and gaming facilities are not exempt. You must always account for VAT on:
- admission charges to premises including those where betting and gaming takes place
- club subscriptions including those to gaming, bingo and bridge clubs, and so on
- ‘relevant machine game’ takings (see paragraph 9.2)
- refreshments and catering
Even if you fund prizes for your exempt betting and gaming activities from your taxable income you must still account for VAT on your gross taxable receipts.
2.3 The value of the exempt supply
If you provide exempt facilities for betting or gaming, the value of your exempt output is the full amount of the stakes or takings, less only the money paid out in winnings or, if the prizes are goods, their cost to you (including VAT). You must not deduct any betting or gaming duty payable.
2.4 Casino card room games
In addition to their conventional games of chance against the house, casinos may hold competitions or tournaments in card room games, such as backgammon or poker. The whole of the participation fee which may be described as ‘table money’, ‘session charge’ or ‘competition fee’ is often put towards the prizes and sometimes the casino puts in an extra sum to make the prizes more attractive. If you hold such competitions, the entry fee is exempt from VAT even though they may make no contribution to your profits.
Entry stakes to card room competitions which are conducted strictly in accordance with guidelines agreed between the British Casino Association and HMRC are outside the scope of VAT.
2.5 The position of agents
If you are a pools agent, concessionaire or collector, your services are exempt from VAT. So, there is no requirement to account for VAT on the commission that you receive. The services of bookmakers’ agents are exempt, and so are the services of bookmakers themselves when they act as agents in accepting bets for other bookmakers or for the Tote. If these are your only sources of self-employed income you cannot register for VAT.
If you receive income from taxable activities, such as commission from distributing and collecting spot-the-ball coupons, or from providing a lottery management service (see section 5), you must register for VAT if your taxable income from all sources exceeds the VAT registration threshold.
2.6 Spot the ball competitions
HMRC now accepts that all spot the ball competitions are games of chance and are therefore exempt from VAT as a form of pool betting following a 2016 Court of Appeal judgment.
3. Definitions of game of chance, stake money and session or participation charge
3.1 Game of chance
‘Game of chance’ is defined in Note 2 of Group 4 of Schedule 9 to the Value Added Tax Act 1994. Essentially, it is either a game of:
- pure chance, such as dice or roulette, where the result cannot be influenced by the player
- chance and skill combined, such as whist or rubber bridge, where the player either cannot eliminate chance or can only do so by exercising superlative skill
These supplies are exempt from VAT.
Many other games including any athletic games or sports are not regarded as games of chance. The supply of a right to play games of skill is standard-rated, for example:
- certain spot the ball competitions (see paragraph 2.6)
- duplicate bridge
You will therefore need to distinguish carefully between the games of chance and the games of skill which you promote.
You can find further information about the treatment of the supply of sporting services in Sport supplies that are VAT exempt (Notice 701/45).
3.2 Stake money
This is the money paid by each player or players which is risked in the game and is returned as winnings to the winning player or players. It is outside the scope of VAT as it is not consideration for any supply by, for example, the gaming club to the player.
3.3 A session or participation charge
A session or participation charge is a charge made to play, often (but not always) separate from the stakes risked by players in the game.
4.1 A lottery
A lottery is the distribution of prizes by chance where the persons taking part make a payment or consideration in return for obtaining their chance of a prize.
This includes the playing of online interactive lottery games. But, the playing of a gaming machine, such as a fruit machine, is not the granting of a right to take part in a lottery.
If merit or skill plays a part in determining the result, the event is not a lottery but a competition. If you are running a sports competition see Sport supplies that are VAT exempt (Notice 701/45).
4.2 The VAT liability of running a lottery
Granting someone the right to take part in a lottery is exempt from VAT. This exemption covers the sale of lottery tickets to the public. If the lottery is free to enter then there is no exempt supply, but see section 13 for treatment of prizes given in a free lottery.
4.3 How to calculate the value of the exempt supply
The value of the exempt supply is the gross proceeds from the ticket sales less only the amount of cash prizes given or the cost, including VAT, of goods given as prizes (but see section 13 if the lottery is free).
4.4 Running a lottery
The promotion of lotteries is only lawful in those circumstances specifically described in the Gambling Act 2005. In addition to the National Lottery, there are other kinds of public lottery which fall under the regulatory powers of the Gambling Commission and local authorities, as follows:
- large society lotteries defined by the Gambling Act 2005
- local authority lotteries operated by local authorities to support any purpose for which they have power to incur expenditure
- small society lotteries which are exempt from holding an operating licence, but must be registered with their local authority
These lotteries can only be run in support of good causes, such as charity fundraising and cannot be run for commercial purposes. But there are also 3 other categories of lottery permitted under the Gambling Act, which do not require operating licences or registration with any statutory body, and do not need to be in support of a good cause:
- incidental non-commercial lotteries held at non-commercial events, where all money raised at the event goes entirely to purposes that are not for private or commercial gain
- private society, work or residents’ lotteries where tickets can only be sold to society members, workers at or residents of a premises
- customer lotteries run by occupiers of business premises selling tickets only to customers on the premises itself
4.5 If the society sets up a separate development association
If the society sets up a separate development association or other organisation to promote its lottery, it will be that association or organisation which is making the exempt supply. The net proceeds of the lottery paid by the development association to the society are outside the scope of VAT and any expense relating to the lottery, where these are deductible, cannot be reclaimed by the society as its input tax.
4.6 The National Lottery
The National Lottery is regulated by the National Lottery Commission and is the only lottery of its kind that may legally be run in the UK.
4.7 Lotteries promoted by local authorities
Local authorities are allowed to promote lotteries under the Gambling Act. When a local authority promotes or organises a lottery this is treated the same way as those run by societies. Local authorities proposing to run a lottery should contact our VAT general enquiries to discuss the circumstances, with particular regard to the amount of input tax that the authority will be entitled to deduct.
4.8 Paying Lottery Duty on your lottery ticket sales
Lotteries promoted in accordance with paragraph 4.4 do not have to pay duty. For full details please refer to Excise Notice 458: Lottery Duty.
5. Lottery management companies
5.1 An External Lottery Manager
An External Lottery Manager (ELM) is a person or body who makes arrangements for a lottery on behalf of a society or local authority. These arrangements may include such things as arranging for tickets to be printed, organising publicity, arranging for the sale of tickets by agents and the paying out of prizes.
An ELM will not be a member, officer or employee of the society or authority, and will normally be required to obtain a lottery manager’s operating licence from the Gambling Commission in order to carry on lottery management activities.
5.2 The liability of lottery management services
The supply of lottery management services is standard-rated. A provider of such services must account for VAT on the following when added together, any:
- fee or commission paid by the lottery promoter
- additional amounts retained from gross ticket sales to cover the cost of running the lottery
- commission received and retained by selling agents used by the lottery management company
Takeaway the amount paid out in prizes by the management company (or VAT-inclusive costs of goods given as prizes).
But, if a lottery management company also sells tickets itself by using its own outlets and employees, rather than merely arranging for their sale by independent sellers, it will be entitled to exempt this direct selling service like any other ticket seller. If the company does not specify a separate charge for its own selling service, it must make an apportionment of its global charge as between the exempt and standard-rated services provided to the promoter. The exempt element of the charge must be shown separately on the tax invoice.
VAT guide (Notice 700) provides guidance about how to make an apportionment.
6. Lottery ticket sales
6.1 The liability of the service of selling lottery tickets
The actual service of selling lottery tickets is exempt.
6.2 Accounting for tax on commission if you’re a retailer
If a retailer sells lottery tickets as an agent for either a lottery management company or promoter, the commission that they receive is a consideration for the exempt service of selling lottery tickets to the public.
6.3 Who must account for the gross ticket sales
The principal must account for the value of ticket sales to the public, and the principal is usually the lottery promoter. But, if the tickets are sold to a retailer who will sell the tickets on at a higher price, that retailer becomes the principal. The purchase of the tickets by the retailer from the promoter would be exempt. The money retained from sales of the tickets by the retailer is exempt.
6.4 How the sale of tickets affects use of a retail scheme
If a ticket seller uses one of the retail schemes to account for VAT, the exempt outputs must not be included in the scheme calculations. Therefore money taken for the sale of tickets should be excluded as this is not part of the retailer’s taxable turnover.
If the value of lottery tickets sold is included in the Daily Gross Takings (DGT) then, when calculating the DGT for the retail scheme calculation, the retailer should reduce the DGT by the value of the lottery tickets sold. For further information about retail schemes, see Retail schemes (Notice 727).
7. Electronic lottery terminals
An electronic lottery terminal will typically hold a group of virtual electronic tickets which have been randomly distributed. As with a paper pull-tab lottery, the order in which the next ticket is revealed cannot be influenced by the player or the machine. The supply made by making the machine available for play is the right to participate in a lottery and it is exempt from VAT.
8.1 The liability of participation and session charges
Participation and session charges are made for the right to take part in a game or series of games of bingo. As of 27 April 2009 all bingo participation fees and session charges became exempt from VAT.
8.2 Bingo terminals
A bingo machine is designed or adapted to play or provide an electronic or video version of a game of bingo. The takings from the machine for the games are exempt from VAT.
9. Machine games
9.1 What machine game means
A machine game is a game whether of skill or chance, or both, played on a machine for a prize. A machine may be termed as a gaming machine or amusement machine.
9.2 A relevant machine game
A relevant machine game is a game of skill, chance or both that is played on a machine for a prize and which is not subject to any duty. Examples of such games include:
- non-cash prize games, like, a teddy bear in a crane grab machine
- redemption ticket games which pay out tickets which the player can redeem for a non-cash prize (these machines are often located at family entertainment centres)
9.3 A dutiable machine game
From 1 February 2013, a new Excise Duty, Machine Games Duty (MGD) was introduced. Where MGD is chargeable, no VAT is due on the machine game takings as the supplies are exempt
9.4 A mixed machine game
Mixed machine games offer players the opportunity to win cash and non-cash prizes. In some instances, the machines may also offer non-game activities, for example, access to social media websites.
An example of a mixed machine includes a coin pusher machine which rewards players with prizes in the form of cash or a small cuddly toy.
10. Machine game supplies and transactions
10.1 Supplies involved in machine game transactions
There are a number of different supplies involved in dealings connected with machine games. These are the supply of:
- a machine game to a player
- the hire of the machine, when an owner rents a machine out, either for a fixed rental charge, or perhaps for a share of the profits
- a licence to trade, when the owner of the premises allows a machine to be sited on those premises
10.2 The VAT liability of the supplies
The VAT liability of the supplies is as follows:
- VAT is due at the standard rate on relevant machine game takings
- no VAT is due on dutiable machine game takings as these are exempt from VAT
- hire charges for the machines are always subject to VAT at the standard rate
- charges for siting machines are always subject to VAT at the standard rate
Section 12 describes a number of supply combinations that may be involved when the use of a gaming or amusement machine is supplied to the public. It does not cover all of the possibilities, but you may find the examples helpful if you are trying to determine the nature and liability of the supplies you are making.
11. Accounting for any VAT due on taxable machine game takings
11.1 Who must account for VAT on machine takings
In most cases the supply of the use of a machine to play machine games will be exempt from VAT (dutiable machine games). But where taxable supplies are made (relevant machine games), the person who supplies the use of the machine to the public must account for VAT on the takings. There can only be one person who does this and it will usually be the person who exercises day-to-day control over the machine and is entitled to the takings.
(a) Gaming machines. The person who supplies the use of the gaming machine to the public is usually the occupier of the premises on which the machine is situated. In the case of:
- commercial gaming premises licensed under sections 65 and 150 of the Gambling Act 2005 (for example, casinos, bingo halls, adult gaming and family entertainment centres), it will be the holder of the licences or that person’s employee
- clubs or miners’ institutes possessing a club machine permit under section 273 of the Gambling Act 2005, it will be any officer or member of the club or any person employed by them
- travelling pleasure fairs, it will be the showman who owns and operates the fair
- public houses, it will be the person named on the licensed premises gaming machine permit under section 283 of the Gambling Act 2005
- unlicensed gaming machines, it will normally be the person who controls its operation, but the supply position will depend on the particular arrangements in each case, although the machines are unlicensed, the takings from them are nevertheless liable to VAT
(b) Amusement machines. The person who supplies the use of an amusement machine to the public will be either the:
- site occupier, if the machine is purchased, hired or rented by the occupier of the premises on which it is sited
- owner of the machine, where the owner of the machine pays rent to the occupier of the premises on which the machine is sited, if the machine is operated on a profit share basis the supplier of its use to the public will be the person who controls its operation
But the correct position can only be determined by reference to the particular arrangements in each case.
11.2 How to work out the amount due
The takings from relevant machine games will be subject to VAT at the standard rate. Where MGD is chargeable on the net takings from playing dutiable machine games, no VAT will be due as the supplies are exempt. The net takings constitute the value of the exempt supplies. Where a machine offers taxable ‘relevant machine games’ and other games or activities that are not taxable, the payments received should be directly attributed to each activity. Where it is not feasible to attribute or apportion takings and winnings between relevant machine games and other games or activities then any attribution or apportionment should be done on a just and reasonable basis (refer to the VAT guide (Notice 700) for further information on apportionment).
Taxable takings are regarded as VAT inclusive. No other deductions should be made from the takings before the VAT fraction is applied. Do not deduct from the takings:
- hire or rental charges you pay to the company which owns the machine
- any share of the profits or other charge due to another person (for example, a brewer sharing the proceeds of the machine with a tenant)
- payments you make out of the takings, such as those under maintenance contracts, or where you decide to fund an additional prize
- VAT on any of the above charges or payments
11.2.1 Site-wide operation (amusement arcades only)
In principle, the taxable receipts should be calculated for each individual machine. But if you operate amusement arcades with large numbers of machines, it may be possible to calculate your receipts upon a site-wide basis. You should obtain approval for this procedure from the VAT helpline.
11.2.2 When to account for any VAT
The tax point for supplies made from coin-operated machines is the date the machine is used although, as an accounting convenience, operators may delay accounting for VAT until each time that the takings are removed from the machine.
The takings from machine games which are subject to MGD are not subject to VAT and the appropriate MGD guidance, Excise Notice 452: Machine Games Duty.
11.3 How to treat tokens
11.3.1 Re-playable tokens
When you work out the takings you must treat a re-playable token (one which can be used to play a machine) as having its recognised cash value. For example, if a machine can be played with either a 10 pence coin or a token, you must take the value of the token as 10 pence.
Any tokens previously returned to the machine through the ‘no play’ token return slot by the site occupier or gaming machine owner are outside the scope of VAT. These tokens have not been used to play the machine and therefore are not part of the takings.
11.3.2 Non-re-playable tokens
These tokens cannot be used to play a machine. Their treatment in the takings depends on whether they have a recognised cash value.
Where they have a recognised cash value, and are therefore exchangeable for cash or goods you also sell, treat them in the same way as re-playable tokens (see paragraph 11.3.1).
Where tokens have no recognised cash value and are exchangeable for goods you do not also sell, record the full amount of cash removed from the machine after any necessary adjustments to the cash float. Do not make any deduction for tokens won or put into the float, or for prizes given in exchange for these tokens.
11.4 How to account for VAT on foreign or fake coins or dud tokens
When takings are removed from machines, you may find that they contain foreign coins, fakes or facsimiles that players have inserted to obtain plays. These may be disregarded when calculating the taxable takings, as the duds do not constitute consideration. But equally you must not reduce the takings because of them.
11.5 If you use a retail scheme
If you use one of the retail schemes, you should deal with your taxable ‘relevant machine game’ takings as follows, for:
- the point of sale scheme, add the taxable machine takings to your standard-rated DGT for the day on which you remove the cash or tokens from the machine (you can find further information on the point of sale scheme in VAT point of sale retail scheme (Notice 727/3)
- an apportionment scheme you must exclude your taxable machine takings from your retail scheme calculations and work out the VAT due on them as explained in paragraph 11.2
- a direct calculation scheme and your minority goods are zero-rated (and reduced-rated where applicable) add the taxable machine takings to your DGT on the day which you remove the cash or tokens from the machine
Where your minority goods are standard-rated (and reduced-rated where applicable) exclude the takings from your scheme calculations and keep a separate record, working out the VAT due as explained in paragraph 11.2. You can find further information on direct calculation schemes in VAT direct calculation retail schemes (Notice 727/5).
Include the VAT due on your machine takings in the total output tax shown as due on your VAT Return.
Where a dutiable machine game operator uses one of the retail schemes to account for VAT, the exempt outputs (from the dutiable machines) must be excluded from the taxable turnover.
If the value of exempt dutiable machine game takings is included in the DGT, then, when calculating the DGT for the retail scheme calculation, the retailer should reduce the DGT by the value of the exempt dutiable machine game takings. For further information about retail schemes, see Retail schemes (Notice 727).
11.6 Accounting for VAT on stolen takings
The tax point for supplies made from coin-operated machines is the date the machine is used although, as an accounting convenience, operators may delay accounting for VAT until the takings are removed from the machine.
For all other purposes, the normal tax point rules apply. Therefore in the event of a theft of takings from a machine VAT must still be accounted for in full on any supplies that have been made from the machine.
12. Examples of supplies made between machine owners and site occupiers
(see paragraph 11.2)
12.1 Gaming or amusement machine is supplied to a brewery with a managed pub
The machine owner makes a standard-rated supply of the hire of the machine to the brewery. The brewery makes either a standard rate or exempt supply of the use of the machine to the public. This depends on whether the machine offers taxable ‘relevant machine games’ or exempt dutiable games (games liable to MGD) or both.
12.1.2 Accounting for VAT
The machine owner accounts for VAT on the hire charge, the brewery accounts for any VAT due on the machine takings.
12.2 Gaming or amusement machine is supplied to the tenant of a brewery-owned pub
The machine owner makes a standard-rated supply of the hire of the machine to the tenant, the tenant makes either a taxable (at the standard rate) and exempt supply of the use of the machine to the public, depending on whether the machine offers taxable ‘relevant machine games’ or other exempt dutiable games (games liable to MGD) or both. The brewery makes a standard-rated supply of a licence to trade to the tenant to site the machine on its premises.
12.2.2 Accounting for VAT
The machine owner accounts for VAT on the hire charge. The tenant accounts for any VAT due on the machine takings. The brewery accounts for VAT on the charge for siting the machine.
12.3 Owner of a gaming or amusement machine pays rent (for example, a fixed sum or a share of the profits) to a brewery with a managed or tenanted pub
The brewery makes a standard-rated supply of a licence to trade to the machine owner in allowing the machine to be sited on its premises. The machine owner makes either a taxable (at the standard rate) or exempt supply of the use of the machine to the public, depending on whether the machine offers taxable ‘relevant machine games’ or other exempt dutiable games (games liable to MGD) or both.
12.3.2 Accounting for VAT
The brewery accounts for VAT on the charge for siting the machine. The machine owner accounts for any VAT due on the machine takings.
13. Treatment of prizes
This section sets out the VAT treatment of prizes awarded in betting and gaming.
Prizes of cash are outside the scope of VAT.
Prizes of goods in free lotteries and in sports competitions
Prizes of goods in free lotteries and in sports competitions should be treated as business gifts and VAT is only due if the tax exclusive cost of the prize is over £50. Input tax will then be deductible in the normal manner. But if you buy a car to be given away as a prize, you may only reclaim the input tax if you do not make the car available for private use before it is given away. If you do reclaim the VAT on the purchase you must declare output tax on the tax exclusive cost of the car when it is given away. For further information see Business promotions and VAT (Notice 700/7) schemes and VAT on motoring expenses (Notice 700/64).
Any input tax claimed will still be subject to the partial exemption rules, see VAT Notice 706: partial exemption.
Prizes awarded from a machine
Prizes awarded from a machine itself (for example, a crane grab machine) may be treated as business gifts for VAT purposes.
Prizes of goods and services in exempt betting and gaming
Prizes of goods and services in exempt betting and gaming should be treated as part of the exempt supply and no output tax is due on such prizes. Any VAT incurred in purchasing the prizes is exempt input tax which is not deductible, subject to the partial exemption rules.
Prizes of goods or services given in taxable competitions
Where prizes of goods or services are given in taxable competitions, no further tax is due.
Prizes of services awarded in free lotteries or as bonus prizes in sports competitions
Prizes of services awarded in free lotteries or as bonus prizes in sports competitions, are outside the scope of VAT. But where the prize is of a holiday or tickets to sporting or other events, input tax is not deductible by virtue of the business entertainment rules. Should you provide any other services as prizes, input tax may not be deductible but you should contact the VAT helpline for advice.
Prize goods in exchange for machine tokens with a recognised cash value
If you supply prize goods in exchange for machine tokens with a recognised cash value, you must account for VAT on the goods as if you had supplied them by normal retail sale. The value of the supply is the normal retail selling price of the goods or, if you do not sell such goods to the general public, the equivalent cash value of the tokens you have accepted in exchange for them. You can reclaim as input tax the VAT incurred on the purchase of the prize goods in the normal way.
14. Input tax
You are entitled to deduct the input tax incurred on goods and services that you use or intend to use in making taxable supplies. You cannot normally deduct input tax incurred on costs that relate to your exempt supplies. But if your input tax relates to both taxable and exempt supplies, you will be ‘partly exempt’. Partly exempt businesses must undertake a calculation each time they complete their VAT return, which works out how much input tax they may recover. For further information about partial exemption, see Notice 706: partial exemption.
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