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HMRC internal manual

VAT Betting and Gaming Guidance

Relevant Machine Games: extracts from legislation: European VAT law

The operation of “relevant machine games” is covered by Articles 73 and 135(1)(i) of the Principal VAT Directive and Section 23, Item 1 of Group 4, Schedule 9 and Note (1)(d) of Group 4, Schedule 9 of the VAT Act 1994.

Article 73 of the Principal VAT Directive states that within the territory of the country the taxable amount shall be:

In respect of supplies of goods and services other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes the consideration obtained or is to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

This means that output tax should be calculated on the gross take, e.g. all the money paid to play a ‘relevant machine game’. Whilst UK VAT law allows operators to calculate output tax on the ‘net take’, which is more favourable to them, in reality for most ‘relevant machine games’ output tax will be due on gross receipts. An explanation of the meaning of net take and how to calculate the output tax due can be found in VBANDG12000

Article 135(1)(i) of the Principal VAT Directive exempts:

betting, lotteries and other forms of gambling, subject to conditions and limitations laid down by each Member State.

The wording of Article 135(1)(i) allows Member States to apply their own conditions to the scope of the exemption, and thus enables the UK to tax gaming machine takings on a net take basis.