This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
Whilst there was no mention of any gambling duties from Alistair Darling in his pre-budget report, the reduction in VAT is likely to be well received by operators of slot machines, FOBTs and other machines falling within the definition of "gaming machine" for VAT purposes.
Operators of gaming machines are required to account for VAT on the net amounts received from punters; i.e stakes placed less winnings paid out. In practice, therefore, VAT on gaming machines is a gambling duty in all but name but, unlike gambling duties, it has the attraction for operators that they can recover attributable "input tax"; namely VAT suffered on goods and services that the operator acquires which relate to those gaming machine supplies.
Under the UK's current regime, VAT is charged at 17.5% on an "exclusive of VAT" basis. On an "inclusive of VAT" basis, however, this equates to 14.89%. As a result, operators of gaming machines have, to date, been obliged to account to HMRC for 14.89% of their net receipts.
With the VAT rate being reduced to 15% (on an "exclusive of VAT" basis) from 1 December 2008 until 31 December 2009, operators of gaming machines will now be obliged to account to HMRC for only 13.04% of their net receipts.
The special rules which allow operators of coin operated gaming machines to delay accounting for VAT until the time when coins are removed from the machine will be disapplied at the time of the rate reduction. Instead, operators will have to apply the standard rules which require VAT to be accounted for by reference to the date on which the machine is used. Where the machine does not record the time when amounts are received, a time apportionment will need to be made.
In addition, anti-avoidance provisions are to be introduced in the Finance Bill 2009 to prevent businesses trying to take advantage of the reduced rate once the rate reverts to 17.5% at the end of December 2009.