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HMRC internal manual

VAT Betting and Gaming Guidance

Machine games: treatment of tokens and prizes awarded from machines: circulation of replayable tokens - new tokens entering the system/exchanges for goods

A successful player may exchange tokens that have been won for goods. The trader should be accounting for VAT on these transactions. This is an area where there is ample scope for under-declarations to occur. In addition to the possibility that VAT simply may not be declared at all in respect of these supplies, the scope for understating their volume is greatly enhanced if a trader’s accounting system fails to record additional tokens being introduced into circulation.

When, for example, a trader obtains a fresh supply of tokens from a manufacturer and puts them into machines without this being recorded, the total number of tokens on-site can exceed the original level. If a site-wide basis of accounting has been accepted, rather than an individual machine basis, we would be unaware that the site system now contains a higher level of tokens potentially payable as winnings. If more winnings are paid out, there will be a greater number of tokens exchanged for goods. However, the trader would more easily be able to suppress a proportion of these exchange transactions because nothing would indicate to us that a higher level could be occurring.