The UK Government has announced its plans to replace the current AMLD (Amusement License Duty) and VAT with MGD (Machine Gaming Duty) from February 2013. As the MGD rate will be subject budgetary control and has not been announced yet it is unclear how this will effect gambling establishment operators but it is likely that operators that had fewer machines will increase the number as the fixed costs barrier is removed.

Currently operators, such as bingo clubs, pay an annual license fee (AMLD) per machine which varies depending on the category or machine. It is payable regardless how much revenue the machine takes. In addition 20% VAT is payable on the revenues however some of this VAT is reclaimable against other related costs. As with bingo taxation the new MGD will not allow operates VAT relief on other costs and it is therefore a risk to operators that such a strategy could cost them significant amounts more than they are currently paying. The MGD rate is expected to be announced in the budget in March 2012.

Smaller operators with low numbers of machines and low turnover over are likely to find the situation less harsh than operators that have a high number of machines with levels of turnover. Whether any operators will actually be better off is impossible to determine without confirmation of the actual rate of the new tax. The new MGD tax will be in two classes one of which will be lower and cover the current category D machines. Currently category D machines have a 0% rate AMLD but limited to £5 cash or £8 prize payout with stakes no higher than 10p. The MGD rate is expected to cover all other machines.

Operators that have few machines currently and were put off investing in further machines due to the fixed AMLD cost which was around £3,000 per year will be tempted to invest in further machines as the MGD rate will be related to the revenues and there will be no upfront fixed cost.

No doubt overall HM Treasury will be better off under the new systems but whether there will be any gambling establishment operators that are better off is yet to be seen. Operators with high gaming machines revenues are undoubtedly going to be significantly worse off.