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HMRC internal manual

VAT Betting and Gaming Guidance

HM Revenue & Customs
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Gaming and amusement machines: the taxable person - who should account for VAT on the machine takings?: supplies involving membership clubs (artificial separation of business activities)

The treatment of clubs under social law creates a particular VAT supply problem in the area of artificial separation of business activities (disaggregation). For example, under Section 266 of the Gambling Act a members’ club may not be issued with a gaming machine licence unless it can be shown that the proceeds will be used for the benefit of the club’s members rather than its owners.

There may be conditions attached to the issue of the licence and these will be specified by the individual local licensing authority. Many local authorities require clubs to set up a separate sub-committee to control the operation of the gaming machines. This will involve maintaining a separate set of accounts and records in respect of the machine takings and expenses.

The provisions of paragraphs 1A and 2 of Schedule 1 of the VAT Act 1994 permit us to direct that separate legal entities account for tax as a single taxable person where we consider that the separation is artificial. However, as the reason for setting up a separate gaming machine committee may be to comply with social law it may be difficult to argue successfully that their separation is artificial. Therefore, if you encounter a members club which has a sub-committee operating gaming machines you should determine, and take into account, the precise conditions of the club’s gaming machine licence before deciding whether or not to issue a Notice of Direction re disaggregation. You will find further guidance on artificial separation in V1-28 Registration.