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HMRC internal manual

VAT Betting and Gaming Guidance

Machine games: treatment of tokens and prizes awarded from machines: replayable tokens exchanged for prize goods

It is frequently possible for successful players to exchange replayable tokens that have been awarded by a machine for other prizes. This exchange transaction constitutes a separate supply for VAT purposes and should be regarded as if the supply of the goods is by way of normal retail sale. The value of the supply depends upon whether or not the trader also sells the goods to the public. If he does, the value of the supply is his normal retail-selling price of the goods; if he does not, the value will be the equivalent cash value of the tokens that he has taken in exchange.

Input tax that has been incurred on the goods exchanged will be deductible, subject to the normal rules.