A pub fruit machine and Machine Games Duty: 5%, 20% or 25% of net takings, worked for a quarter

A tenant takes over a pub in October. In the corner is a fruit machine that came with the lease, and the outgoing tenant's handover note says the machine "pays for itself". Whether it does depends on a duty most new tenants have not heard of until the first return is late.

Who pays

GOV.UK is plain on this for pubs. A pub tenant is responsible for Machine Games Duty, "rather than the premises licence owner (usually the pub's owner)". You must register for the duty before making machines available to play. A return goes to HMRC every three months, and payment is due within 30 days of sending a return.

What it is charged on

The duty is on net takings: the amount charged to play, less winnings paid out, including non-cash prizes. Charity events, tournaments, lottery machines and domestic machines are excluded.

The three rates

A mixed machine, with more than one game, pays the rate of the highest rated game on all takings from the machine. One £10 game on an otherwise ordinary machine puts every pound of its takings at 25%.

A quarter worked

Take a machine that takes £600 in stakes a week and pays out £450 in prizes.

1. Net takings a week: £600 − £450 = £150.
2. Over a 13-week quarter: £150 × 13 = £1,950.
3. At 20% (type 2): £1,950 × 20% = £390, due within 30 days of sending the return.
4. At 25% (a higher-rated game on the machine): £1,950 × 25% = £487.50, which is £97.50 more.
5. At 5% (type 1): £1,950 × 5% = £97.50.

So the duty on a machine that nets £150 a week costs a pub tenant £1,560 a year at the standard rate. Whether the machine earns its place depends on the supplier's share of the takings and the rent for the machine, and neither is in the pages I read.

What a tenant should check at handover

• Is the pub registered, and in whose name? Registration is the tenant's, so the previous tenant's registration does not carry over to you. I did not read what happens to the registration on a change of tenant, so ask HMRC.
• Which games does each machine carry? Ask the supplier for the maximum stake and prize on each, so you know which rate applies.
• When is the next return due? The three-month period is set at registration. Put the return and the payment date, which is 30 days after sending, in the diary.
• Where does the cash go? The takings and prizes figures need the machine's own meter, not the till.

This sits alongside the rest of the licensing costs of running a pub: the annual fee in our premises licence fees guide, the music licence costs and the yearly business rates. When you take a pub over, the transfer rules are in the guide on a premises licence transfer when buying a pub.

I did not read the gaming machine permit rules or the amusement-with-prizes rules, which are separate from the duty. Check those before you install or keep a machine.

Overlyft builds AI staff who join your pub team, read the machine's meter counts you photograph each week, work out net takings and the duty for the quarter at the right rate and have the return figures ready for you to check before you submit.

This is general information, not tax advice. Check GOV.UK and your supplier's terms before you rely on it.