Gabelle Tax Analysis: Gaming machines may increase input tax restrictions
From 1 February 2013, the takings from most gaming machines will become subject to Machine Games Duty (MGD), and will become exempt from VAT. As a result, businesses may suffer additional input tax restrictions and must take into account the purpose for acquiring a gaming machine at the time of acquisition and what effect the additional exempt income will mean to input tax recoveries.
HMRC consider that the date of Royal Assent to the Finance Act 2012 will impact VAT recoveries particularly in determining whether the business had the intention of making taxable supplies.
If gaming machines are acquired before the date of Royal Assent, by a business that is currently fully taxable, the intention at the time of acquisition would be that the machines would be used wholly for taxable activities and all of the VAT on them can be recovered with no subsequent adjustment.
If machines are purchased after Royal Assent, but before 1 February 2013, HMRC considers that the purchase should be treated as for mixed use, i.e. partly taxable and partly exempt, and input VAT apportioned under a partial exemption method.
Purchases made after 31 January 2013 should be treated as wholly referable to exempt supplies and none of the VAT on them would be recoverable, subject to the partial exemption de minimis limits.
HMRC considers that if the business is already partly exempt, when the gaming machines are acquired, the treatment is different. Acquisitions made prior to Royal Assent can still be treated as referable to taxable supplies, enabling the VAT incurred on them to be treated as fully recoverable at the time of acquisition, but, according to HMRC, the VAT has to be treated as residual in the year end partial exemption calculation and an adjustment to VAT recovery may be required as a result.
Every business affected by the introduction of MGD will need to consider its individual circumstances, particularly the input VAT cost resulting from partial exemption restrictions on recovery.