How do I work out how much MGD I owe?
The first thing to note that the calculation for MGD is a quarterly event, much the same as your VAT return and is calculated thus:
Gross Machine Income (all the takings in the cash-box) less any refunds and refills will give you the Net Machine Income. You then calculate what 20% of the Net Machine Income is and this is the amount you will owe to HMRC for MGD.
Tenanted / Leased Example:
Gross Machine Income over 13 weeks ( i.e. a quarter) is £2,600.
Refunds and refills over 13 weeks come to £280.
This would leave £2,320, of which, say, your landlord is entitled to 50% under the terms of your tenancy / lease. This should mean that your Net Machine Income would be £1,160. (I say ‘should’, as you need to confirm with your landlord how they interpret your existing tenancy/lease agreement in light of the new MGD rules.)
20% of your Net Machine Income would be £232, and this is the amount of MGD you would need to enter on your quarterly MGD return and pay to HMRC.
Free-house Example:
Gross Machine Income over 13 weeks ( i.e. a quarter) is £2,600.
Refunds and refills over 13 weeks come to £280.
This would leave £2,320, this is your Net Machine Income.
20% of your Net Machine Income would be £464, and this is the amount of MGD you would need to enter on your quarterly MGD return and pay to HMRC.
Whether tenant/lessee or free-house operator, you will have 30 days from the end of a MGD accounting period (quarter) to make your return and any payment due to HMRC.
What about VAT?
The rules for this are quite complicated, so you should consult your accountant on how this will affect your business. For most single-site pub operators the change to MGD will mean that the income from machines covered by MGD will be exempt from VAT i.e. you won’t have to pay VAT on the income. Your accountant will advise you on this matter.
What should I do next?
Five simple steps to make sure you stay within the MGD law:
- Check that your accountant is aware of MGD and is geared up to deal with it.
- If you are a free-house operator, make sure you (or your agent) register with HMRC from November 1st 2012, but no later than January 31st 2013.
- If you are a tenant or lessee, check with your landlord how they are going to deal with the change to MGD (both in terms of your tenancy or lease agreement and with your nominated machine supplier); make sure you (or your agent) register with HMRC from November 1st 2012, but no later than January 31st 2013.
- Make sure you account properly for all games machine transactions: keep print-outs from machine company collectors, keep a proper record of refills and refunds, complete your first return and make payment to HMRC on time (the first quarter under the scheme ends on April 30th 2013 and the return/payment would be due to HMRC no later than May 30th 2013).
- Check with your landlord (if applicable) and/or accountant and do a calculation of how the change to MGD will affect your bottom line profit and cash-flow; take the change into account in your on-going business plan.
As with all matters relating to tax you should seek professional advice from your accountant, this article is meant for your guidance only.
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