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HMRC internal manual

VAT Betting and Gaming Guidance

Lotteries: what is a lottery?: gaming machines offering the right to participate in a lottery

VBANDG07000 explains how gaming machines are excluded from exemption Group 4, Item 1 of the VAT Act 1994 by virtue of Note 1(d) to the Group. Traders often argue that some gaming machines can meet the criteria for lotteries and should therefore be granted exemption under Item 2. This argument was tested before a VAT Tribunal in the case of George McCann trading as Ulster Video Amusements (BEL/85/26).

Mr McCann had appealed against an assessment on the ground that the gaming machines that he provided satisfied the criteria for lotteries. He relied upon an unreported case decided under the Betting and Lotteries Act (Northern Ireland) 1957 in which a magistrate had found that some gaming machines could be classed as lotteries within the terms of that Act.

The Tribunal found in our favour and dismissed the appeal. Whether the gaming machines constituted lotteries for the purposes of other legislation did not mean that they were automatically to be treated in the same way for VAT purposes. The other legislation was intended to control unlawful gaming; it was not a taxing provision. It was necessary to examine the intention behind the legislation.

In a different case, Oasis Technologies Ltd (TC 00581), the Tribunal agreed with HMRC that the Oasis Electronic Lottery Ticket Vending Machine (ELTVM) is a gaming machine within Schedule 9, Group 4, Note 1(d) of the VAT Act 1994. However, the Tribunal found that the Oasis ELTVM also granted the right to participate in a lottery within Schedule 9, Group 4, Item 2 and that the takings from this machine are exempt from VAT. HMRC did not appeal the decision.

Oasis was the manufacturer of Electronic Lottery Ticket Vending Machines (ELTVM). Oasis hired out ELTVMs to private members’ clubs and sold them virtual electronic lottery tickets for use in the machines. There was no issue concerning the liability of these supplies. The Tribunal appeal concerned the VAT liability of the supplies made by the clubs using these machines and whether they qualified for exemption from VAT.

An ELTVM displays a lottery ticket on-screen and shows whether a player wins a prize or not. The tickets are stored within an electronic pack of a finite number of pre-drawn winning and non-winning tickets. Packs of tickets are randomised securely prior to being supplied to clubs and are downloaded onto the hard drive of the ELTVM. The order in which tickets are displayed is fixed once downloaded and cannot be influenced by the player or club making the supply.

In light of the conclusions of the Tribunal, HMRC now accept that a machine whose operation is the same as that of the Oasis ELTVM shall be treated as granting the right to participate in a lottery. The supply made as a result is exempt from VAT.

The VAT exemption will apply to a machine having all of the following characteristics:

  • the machine must provide a game of chance;
  • the tickets must be randomly distributed;
  • the player, operator or manufacturer must not be able to influence the order in which a ticket is revealed;
  • the result of the lottery must not be determined or influenced by means of the machine; and
  • where groups of tickets have been pre-loaded into a machine, the machine may randomly select a new group when the current one is completed.