Written by: Rich Holm and Sarah Halsted

Richard Holm

VAT Director

Tribunal support for leisure businesses on overpaid VAT could open claims for £1.5 billion

The Upper Tribunal has upheld claims from two leisure businesses that they had overpaid VAT on historic takings from certain types of gaming machines. This may lead to much-needed refunds for the sector, which was the first to suffer the financial pressures of the coronavirus shutdown.

The VAT treatment of income from gaming machines has seen a long and tangled web of litigation in recent years, focusing on whether takings from gaming machines (historically always subject to VAT) should have been exempt on ‘fiscal neutrality’ grounds. This meant that the games offered by these machines were so similar to other types of VAT exempt betting and gaming that they should have been subject to the same VAT treatment.  Over the years this litigation has considered the VAT position of many different types of gaming machine, each with slightly different characteristics.

In 2013, the law was changed so all gaming machines are now subject to a new tax, Machines Games Duty or other gambling duties, instead of VAT. However, many historic VAT claims remain unresolved.

The latest appeals have been brought by the large leisure operator, Rank Group, and Done Brothers, part of the BetFred bookmakers’ business and concern two types of gaming machine in particular historic periods.

The Rank Group’s claim concerns takings from traditional slot machines (commonly known in the industry as ‘section 16/21’ and ‘section 31/34’ machines) between 2002 and 2005. These were typically sited in pubs, bingo halls, casinos, holiday parks, service station operators, family entertainment and adult gaming centres.

Done Brothers’ claim concerns takings from Fixed Odds Betting Terminals (FOBTs) between 2005 and 2013 period. These were primarily operated by bookmakers and some casinos.

The Upper Tribunal has now upheld earlier decisions of the First-tier Tax Tribunal in favour of both Rank and Done Brothers. Essentially, the FOBTs operated by Done Brothers were found to be similar to other forms of VAT exempt gaming (such as online roulette or roulette played in casinos) and should therefore benefit from VAT exemption. Similarly, the machines operated by Rank were found to be sufficiently similar to FOBTs that the same VAT exemption should apply.

While it is too late to make a new claim, the decision could result in significant refunds for the many leisure and gambling businesses that operated gaming machines during the periods in question and have an appeal stood behind these lead cases. It is estimated that the total value of such claims is in the region of £1.5bn plus interest.

While we fully expect that HMRC will seek leave to appeal the Upper Tribunal decision, that decision is now binding unless and until it is overturned by a higher court. HMRC will now be under pressure to settle claims. HMRC has yet to release any statement on this point but it is expected that, alongside any repayment it may agree to make, it will issue a 'protective' assessment, allowing it to claw back the payment if HMRC is ultimately successful in the litigation.

In the current climate, on the assumption that HMRC is required to make repayments, it will be critical for businesses to receive the refunds as quickly as possible. Leisure businesses should dust off their old claims and consider approaching HMRC for a refund.  

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