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HMRC internal manual

VAT Betting and Gaming Guidance

Lotteries: what is a lottery?: vending machines containing lottery tickets (lottery ticket dispensers)

Subject to minor variations in detail, players insert coins into these machines and obtain cards with scratch- or tear-off panels that reveal combinations of different symbols. These cards include pull-tab lotteries where the player physically pulls back a tab of cardboard to see whether the ticket is a winning one. For certain combinations the players receive cash prizes from the operator of the premises upon which the machines are sited.

We do not consider these machines to be gaming machines for VAT purposes - they are nothing more than ‘lottery ticket dispensers.’ These machines fail to satisfy the criteria for gaming machines in that they are not designed or adapted for use by individuals to gamble. No gambling takes place on the machines itself, and the machine does not play any part in determining the result of the lottery. The game of chance is played by scratching or tearing off the relevant part of the ticket once it has been removed from the dispenser.

The income obtained from persons using these machines should therefore be treated as exempt under Item 2 of Group 4 of the VAT Act 1994.