HMRC has announced it will not be applying penalties for the late submission of the first returns due for the new Machine Games Duty (MGD), which came into operation in February this year.

HMRC says the arrangement, which it describes as exceptional, is an acknowledgement that smaller companies in particular have found the new tax difficult to operate.

It also says it has encountered some 'systems issues' which HMRC admits have confused some companies who are liable for MGD and made it more difficult for them to comply.

MGD is charged on the playing of dutiable machine games where customers pay to play the games in the hope they will win a cash prize that is more than the cost to play the machine. Typically these are the 'fruit machines' found in many pubs.

HMRC say all penalties for late filing of first returns will be cancelled and is advising anyone who has already received a penalty for late filing of MGD to ignore it.

MGD replaces the previous Amusement Machine Licence Duty and requires four returns per year. Where MGD is payable companies do not have to pay VAT.