If your pub or licensed club has gaming machines that pay cash prizes, you have a specific tax compliance obligation that operates differently from VAT or payroll: you must register for Machine Games Duty with HMRC before those machines are made available to play. Not when you first take income. Before the machines go live.
This page explains what MGD is, which machines trigger it, who is legally responsible, how to register, and how the returns cycle fits alongside your other pub tax commitments. For current MGD rates and return frequencies, the authoritative source is always HMRC's Machine Games Duty guidance, because those figures can change and are not reproduced here.
You must register for MGD before a cash-prize machine takes a penny
The rule is simple and the sequence matters: registration comes first, operation comes second. HMRC's guidance is clear that gaming machines requiring Machine Games Duty must be registered before they are made available to play. An operator who switches on machines and registers later is already non-compliant from the first play.
This matters because HMRC treats MGD as a self-assessment regime. You are expected to know the rule applies, register before playing, and file returns on time. There is no reminder and no grace period built into the framework. Pub operators applying for a premises licence or expanding into gaming machines for the first time should treat MGD registration as a pre-launch item, sitting alongside their licence application, not as an afterthought.
Which machines are caught by MGD
The core test is whether the machine offers cash prizes. If a play on the machine can result in a cash payout, or a prize that can be exchanged for cash, MGD registration is required. The table below sets out the main scenarios.
| Machine type | Prize offered | MGD applies? |
|---|---|---|
| Fixed-odds betting terminal or electronic gaming machine | Cash or cash-equivalent credit | Yes, register before play |
| Fruit machine / AWP (Amusement With Prizes) | Cash payout | Yes, register before play |
| Redemption machine | Tokens or tickets exchangeable for cash | Likely yes; take advice on the specific setup |
| Prize machine (pushers, cranes) | Non-cash physical prizes only, prize value below cost to play | No, exempt under prizes-below-cost rule |
| Quiz machine or skill game | No cash prize; entertainment only | No, not a gaming machine for MGD purposes |
The boundary that matters is the one set by the exemption: machines where prizes are worth less than the cost of a single play fall outside MGD. This is a precise threshold, not a general "low-value prizes" category. If there is any mechanism that allows a player to receive cash, even as one option among several non-cash outcomes, the machine is likely caught. When in doubt, register and take specific advice rather than assuming exemption.
Who is liable: the operator holding the qualifying licence
Machine Games Duty falls on the operator holding the qualifying gambling or alcohol licence. Not the machine supplier. Not the leasing company. Not the engineer who installed the cabinet.
This matters because many pubs operate gaming machines under profit-share or commission arrangements with an external supplier, who may handle installation, maintenance, and cash collection. Those commercial arrangements are private contracts and are irrelevant to HMRC. From HMRC's perspective, the compliance obligation sits with the person or business that holds the premises licence or the qualifying gambling authorisation under the Gambling Act 2005.
If you hold the licence and machines are on your premises, the MGD obligation is yours. Any contract with a machine supplier should address who bears the duty commercially, but that contract cannot transfer the legal compliance responsibility.
How to register for MGD
Registration is completed through HMRC's online services. You will need your business details and the reference for your qualifying licence. The full step-by-step process is set out at gov.uk/guidance/machine-games-duty, which is the definitive source and is updated when the registration process changes.
Operators applying for a new premises licence should plan to complete MGD registration as part of the pre-opening checklist, not as a separate task after the pub opens. The timing constraint is absolute: the machines must not go live before registration is complete.
If you are taking over an existing pub that already has gaming machines in situ, check whether the previous operator's MGD registration transfers or whether a new registration is required in your name. A change of licence holder typically requires fresh registration.
MGD returns: the reporting cycle and what you report
Once registered, operators must file MGD returns and pay the duty on machine takings. The mechanism works as follows: the operator reports the gross takings from qualifying machines, applies the appropriate duty rate, and pays the resulting amount to HMRC.
The current duty rates, the bands those rates apply to, and the return filing frequency are all published at HMRC's Machine Games Duty guidance. These figures are not reproduced here because they can be changed by government, and a page that states out-of-date rates creates a compliance risk for any operator who relies on it. Always check the live HMRC page before filing.
What you need to record for each return period:
- Total cash in (money played into the machines)
- Total cash out (prizes paid out)
- Net takings (the difference, which is the dutiable amount)
- Machine-level records if HMRC requires them for a compliance check
The practical implication: pub operators need their machine supplier or till system to provide accurate gross-takings data for every return period. If you rely on a supplier to collect cash from the machines, agree in writing what data they will provide and when, so you can file on time.
Record-keeping and how MGD sits alongside your other pub taxes
MGD returns add a standing compliance obligation alongside the duties, filings and declarations already running for a licensed trade business. Specifically:
- VAT: machine income may or may not be exempt depending on the machine type. Cash-prize gaming machines are generally exempt from VAT, which means the income does not increase your VAT-taxable turnover but you also cannot recover input VAT on machine-related costs. If you are close to the £90,000 VAT registration threshold, check whether machine income counts toward that threshold before assuming it does not push you over.
- Alcohol duty and draught relief: if you also serve cask or keg products, your draught relief position on alcohol duty runs as a separate obligation alongside MGD.
- AWRS due diligence: buying alcohol from unapproved wholesalers is a separate risk area. See our guide to AWRS checks for pub operators.
- Corporation tax or income tax: machine net takings form part of trading profit and are taxed accordingly through your annual return.
HMRC can request records going back several years in a compliance check. Keep machine-level data, supplier statements, and copies of all MGD returns for at least the standard six-year retention window. For MGD purposes that means contemporaneous records, not reconstructed from memory.
If your pub is also approaching the threshold for Making Tax Digital for Income Tax (which applies to sole-trader operators above £50,000 from 6 April 2026 under HP 24), machine income forms part of the turnover that triggers MTD obligations. More on that in our MTD for sole-trader operators guide.
Getting your gaming-machine compliance handled
MGD registration and returns are a recurring compliance commitment, not a one-off. For a busy pub operator, the risk is not that the rules are complicated (they are not), but that the filing cycle gets missed because it sits outside the more familiar VAT and payroll rhythms.
For operators running multiple machines across more than one site, the data-collection challenge grows: machine-level records, supplier data reconciliation, and separate return cycles for each registered business. This is work that integrates cleanly into broader licensed-trade accounting, alongside payroll for bar and kitchen staff, alcohol duty management, and the VAT scheme decisions that apply to a wet-led business.
If you are opening a new pub, taking over an existing site with machines already in place, or expanding from one machine to several, the time to address MGD is before the machines go live, not after HMRC writes to you. See our pub and bar accounting hub for the full picture of what licensed-trade compliance looks like across tax, duties and payroll.