Proposed tax reforms for the gaming industry may threaten the very survival of businesses reliant on gaming machines, according to accountants and business advisers BDO LLP.
Despite being aimed at bringing greater stability and simplicity to the taxation of gaming machines, the government’s intention to replace the current amusement machine licence duty (AMLD) and VAT on net takings with a gross profits tax (GPT) on gaming machine income, combined with VAT exemption on the machines, could spell difficult times ahead for the industry. The tax proposals follow the Treasury consultation on gaming machine taxation published in December 2010 and look set to come into effect in 2012.
Although VAT exemption would seem at first glance to be a welcome development, the change will in fact make it more complex for some businesses - particularly those where gaming machines are a secondary source of income, such as pubs and clubs - to comply with the new VAT regulations.
Moreover, while some businesses will benefit from the additional profits from not having to pay VAT on machine takings, firms that are heavily dependent on the machines, such as adult gaming centres, will suffer from losing the ability to recover a significant proportion of the VAT which they incur.
While the full impact of the reforms will not be known until the rate of GPT is set at the next Budget, the combination of increased costs as a result of VAT exemption - exacerbated by the recent rise of VAT to 20 per cent - coupled with an unfavourable gross profits tax rate, could prove fatal for some gaming businesses.
Martin Dane, VAT principal at BDO LLP, commented: "Successive governments have ramped up the overall tax take from the gaming industry. This government must learn from past mistakes - such as the Bingo Duty debacle - and recognise that reforms must not cripple gaming businesses. The new rate of GPT must be within reason and give realistic recognition to the fact that there will be additional costs arising from VAT exemption, alongside extensive additional administrative costs associated with compliance with the new regime.
"Although we support the government’s consultative approach and commitment to simplifying tax policy, it must also realise that the proposed reforms will not all be fun and games for UK businesses.
"While the ongoing consultation is around the operation and administration of the new tax, there seems to be no room for any further debate on the tax rate. The government must show that, in setting the tax rate, its motivation goes beyond purely increasing the overall tax take from an already highly taxed industry."
