HMRC proposes 25% machine duty for higher-stake and higher-prize games

HM Revenue & Customs (HMRC) published a policy paper on 29 October 2026 setting out a Machine Games Duty (MGD) increase from 20% to 25% from 1 April 2027. The higher rate will apply where the maximum charge to play a dutiable game is more than £1 or the maximum prize is more than £100.

The change will affect businesses providing machine games, particularly adult gaming centres, bingo premises, betting shops and casinos. MGD is charged on net takings. HMRC estimates that around 5,100 operators and approximately 12,400 active premises will be affected, with the measure raising £135m in 2027 to 2028 and £130m annually thereafter through 2031 to 2032.

The classification changes

MGD currently has three rates: 5% for Type 1 machines, 20% for Type 2 machines and 25% for Type 3 machines.

Type 1 treatment is unchanged. A machine is Type 1 where the highest charge payable does not exceed 20 pence and the maximum prize does not exceed £10.

Under the current Type 2 definition, a machine is Type 2 if it is not Type 1 and the highest charge payable does not exceed £5. Legislation in Finance Bill 2026-27 will amend paragraph 5(3) of Schedule 24 to the Finance Act 2012. A machine will remain Type 2 only if it is not Type 1 and both of the following conditions are met:

- the highest charge payable does not exceed £1; and
- the maximum amount that can be won does not exceed £100.

Machines outside the Type 1 or revised Type 2 definitions will remain Type 3 and attract the 25% rate. A current Type 2 machine with a maximum charge of £2, for example, will move into Type 3 even if its maximum prize remains at or below £100. The same will apply to a machine with a prize above £100 but a charge of £1 or less.

The existing residual Type 3 definition will otherwise be preserved. The legislation will also amend the Treasury’s order-making power in paragraph 5(5) of Schedule 24 so that the stake and prize limits can be varied upwards or downwards in future.

What operators need to change

The policy paper specifies that the revised thresholds will have effect for MGD from 1 April 2027.

Operators will need to review the maximum charge and prize settings for each dutiable machine, recategorise machines under the new Type 2 and Type 3 tests, and update systems used to calculate duty. HMRC expects one-off costs for familiarisation, system changes and classification checks, but no ongoing administrative costs from the measure.

The existing process will remain in place. Businesses will continue to register, submit quarterly returns and make payments through HMRC’s MGD service. Because the return refers to lower, standard and higher rates rather than displaying the underlying percentages, HMRC does not currently expect substantive changes to the return itself. Schedule 24 already provides for the calculation of duty where the applicable rate changes during an accounting period.

The tax is paid by businesses, although HMRC says customers could be affected indirectly if operators pass the increase through by reducing player returns. HMRC has not assessed whether protected groups could be disproportionately affected because it does not hold the necessary data, although it estimates that men are slightly more likely to use machine games and that 18 to 24-year-olds are the most likely age group to do so.

A fiscal signal about machine risk

HMRC’s stated policy objective is to charge a higher rate on machines with higher stakes or prizes because they are “more associated with gambling harm”, while retaining existing treatment for lower-stake machines. The measure therefore uses machine characteristics as a proxy for the risk profile attached to the tax rate.

Atlas reads the change as a supervisory signal as well as a revenue measure. Operators will need to treat the maximum permitted stake and prize as tax classification controls, not only as product or licensing parameters. A change to machine configuration that crosses either threshold can change the applicable rate on the machine’s takings.

Gambling Industry News reported that the Betting and Gaming Council described the decision as “deeply damaging”. The paper describes the direct effect as the reclassification of machines and the resulting increase in MGD.

The revised Type 2 and Type 3 thresholds, and the 25% higher rate for qualifying machines, are due to apply from 1 April 2027.