Carlton Clubs Plc v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 09 August 2011 |
| Neutral Citation | [2011] UKFTT 542 (TC) |
| Date | 09 August 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 542 (TC)
J Gordon Reid QC, FCI Arb. (Chairman); Peter Sheppard FCIS, FCIB, ATII
Roderick Cordara Q.C. Essex Court Chambers, London, for the Appellant
Sean Smith, Advocate, Axiom Advocates, for the Respondents
Bingo - Calculation of VAT liability - Method of calculation - Change in policy by commissioners - Retrospective claim for VAT overpaid - Basis of claim - Effect of issue of internal credit note - Value Added Tax Act 1994, Value Added Tax Act 1994 section 19 section 24 section 80ss. 19, 24 and 80; Value Added Tax Regulations 1995 (SI 1995/2518), regs. 24 and 38.
The central issue was whether a change in the method of calculation of the taxable amount from a "game by game" basis to a "session" basis constituted a change in consideration in respect of which the VAT was capable of being adjusted by an internal credit note.
The appellant operated a number of bingo clubs in Scotland and the north of England. Customers paid a "session fee" which entitled them to participate in a session of bingo, consisting of about 15 games. The session fee had two components: a standard-rated participation fee, covering the right to play bingo for cash prizes, and a stake, which was a contribution towards the cash prizes and which fell outside the scope of VAT. Determination of the split between the two components could be made on a game by game basis or on a session basis. The appellant had accounted for VAT using a game-by-game calculation as it thought that was what the commissioners required. However, it believed that the publication of Business Brief 7/2007 on 1 February 2007 enabled it to adopt the session basis, which was more beneficial, and to make a retrospective claim for overpaid VAT.
Claims for overdeclared VAT covering the periods from the introduction of VAT in April 1973 to September 1996 and from December 2003 to December 2006 were agreed and paid by the commissioners. However, because of anomalies arising from separate litigation in Fleming (t/a Bodycraft) v R & C CommrsVAT[2008] BVC 221 concerning time limits, the disputed claim for the period 1996 to 2003 fell outside the usual statutory time-limits. To regularise its accounts, the appellant issued an internal credit note which gave effect to the recalculation of its VAT liability for 1996 to 2003. The re-calculation was accounted for in the appellant's return for period 12/09, in which the VAT payable was reduced by £727,965 in accordance with Value Added Tax Act 1994 regulation 38reg. 38 of the Value Added Tax Regulations 1995. Regulation 38 applied in situations where there had been a decrease in consideration evidenced by a credit note. The commissioners, having approved the calculations, subject to a reduction of £9,233 which the appellant effected by issue of an internal debit note, subsequently informed the appellant that there had been no decrease in consideration for the supplies made and that reg. 38 had not been engaged. The VAT claim of £718,732 was, therefore, disallowed.
The appellant's case was that, historically, participation fees had been calculated on a game-by-game basis in accordance with the commissioners' policy and directions in published notices, such notices being administrative statements giving rise to a legitimate expectation that the game-by-game method was acceptable and indeed compulsory. The commissioners' policy changed in February 2007 and that change required the participation fees to be calculated on a session basis. The appellant had adjusted the apportionment between participation fees and stake money accordingly. It had issued an internal credit note which gave rise to the disputed figures in its period 12/09 return in accordance with reg. 38 of the 1995 Regulations, as it considered that there had been a change in the consideration for the right to participate in the bingo sessions. In any event, there had been an overpayment of VAT and this was properly reflected in the issue of the internal credit note. What had occurred, claimed the appellant, was a statutory deeming process which led to the consideration being reduced retrospectively. That could not be characterised as a mistake to be adjusted under Value Added Tax Act 1994 section 80s. 80 of the 1994 Act as no error was made at the time the tax was originally calculated. By challenging the credit note, argued the appellant, the commissioners were attempting to cut off its access to EU rights.
The commissioners submitted that there had been no change in policy regarding the manner in which the operator should properly apportion the session fee between stake money and participation fee. Even if there had been such a change, there had been no decrease in the sum properly attributable to participation in the bingo session. If it was correct to calculate the VAT liability on a session basis, then it had always been correct to do so. If the advice in the VAT notice was considered to be wrong it should have been challenged and if VAT was overpaid it should have been reclaimed under s. 80 of the Value Added Tax Act 1994. Regulation 38 could not be used to turn what was not VAT into VAT and vice versa. In the commissioners' opinion, there was no event giving rise to a change in consideration. With regard to the credit note, the document did not record the acceptance by both parties that any event triggering a decrease in consideration had occurred. The appellant had simply made an error in accounting for more output tax than was due and s. 80 made provision for reclaiming overdeclared output tax in these circumstances. The statutory defences, such as unjust enrichment and time bar, should not be capable of being by-passed by the issue of an internal credit note.
Held, allowing the taxpayer's appeal:
1.The proper interpretation of the notices and leaflets issued before Business Brief 7/2007 was that the notices required VAT to be calculated on a game-by-game basis. The Business Brief and subsequent notice required VAT payable to be calculated on a session basis. That was a change of policy rather than a clarification of existing policy.
2.The change of policy meant that there was a change in the consideration for the right to participate in each game and each session and there was a consequent and equal change in the stake money. The appellant had, in accordance with the commissioners' administrative directions, changed the consideration for the supply of the right to participate in cash bingo sessions over the period between 1996 and 2003. Such a change fell within the scope of reg. 38 and was not an error to be corrected under s. 80.
3.The internal credit note constituted sufficient compliance with reg. 24 and 38 construed in the light of and having regard to the purpose of eu-directive 77/388 subsec-or-para C article 11art. 11(C)(1) of EC Directive 77/388, the sixth VAT directive.
1.Bingo is the subject of this appeal. The Appellant operates bingo clubs at which its customers compete inter alia for cash prizes. Throughout the eighties until 2007, and, in particular, between 5 December 1996 and 31 December 2003, the Appellant calculated its VAT liability on what is known as the game by game basis. Following the publication by HMRC of Business Brief 07/07 on 1 February 2007, the Appellant recalculated its liability on what is known as the session basis, and gave effect to this (for the period between 1996 and 2003) in its VAT return for the period ending December 2009. This entailed an adjustment of £718,732.32 to Box 1 of the return showing output tax due. The Respondents (HMRC) have reversed the adjustment. The Appellant sought reconsideration of that decision, which was upheld, and now appeal to this Tribunal.
2.A Hearing took place at Edinburgh on 7, 8, and 9 June 2011. The Appellant was represented by Roderick Cordara Q.C. (of the English Bar). Mr Cordara led the evidence of George Carter, C.A., the Appellant's financial controller. He also led the evidence of Jim Maclean an assurance officer with HMRC. HMRC were represented by Sean Smith, advocate. He led no evidence. Both parties produced Skeleton Arguments. A joint bundle of productions was also produced.
3.Finally, by way of introduction, we record that we refused, at the end of Mr Carter's evidence-in-chief on the morning of the first day, an application by Mr Smith to adjourn the Hearing on the ground that he had not been able to obtain instructions from HMRC on their policy in relation to the interpretation of certain HMRC notices and documents. While we had some sympathy for Mr Smith's position, we took the view that, balancing the interests of justice and fairness, progress could and should be made on other aspects of the appeal, and if necessary, Mr Carter could be recalled to give further evidence. In the event, that was not required, and Mr Smith was able to present and argue the case for HMRC without any apparent disadvantage. No further request for an adjournment was made and the hearing proceeded to a conclusion in the usual way.
4.The Appellant operates a number of bingo clubs in Scotland and in the north of England. Cash prizes are paid to those who participate in games of bingo and win. A customer who wishes to participate, pays a fixed sum to participate in a session of bingo. This is known as the session fee. Payment entitles the customer to participate in a session which may last for about two hours and consists, usually, of fifteen games of Bingo. The customer, in exchange for the fixed sum, normally about £10 or £11, typically receives books of tickets or cards which contain lists of numbers for each game.
5.We were provided with a sample. This comprised (i) a book of ten tickets or cards of different colours-a different colour for each of the ten games, (ii) a book of two gold cards, one for each of two games, (i) one ticket or card described as the ...
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