Done Brothers (Cash Betting) Ltd and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 July 2018 |
| Neutral Citation | [2018] UKFTT 406 (TC) |
| Date | 25 July 2018 |
| Court | First-tier Tribunal (Tax Chamber) |
[2018] UKFTT 0406 (TC)
Judge Greg Sinfield, Mr Ian Abrams
Value added tax – Exemption – Betting and gaming – Whether exclusion from exemption of gambling made through fixed odds betting terminals (FOBTs) contrary to EU principle of fiscal neutrality – Whether games played on FOBTs were similar to computer games – Appeals allowed.
The First-tier tribunal (FTT), in allowing the Appellants appeal, found that HMRC's taxable treatment of gambling supplies through FOBTs, against comparator exempt supplies, breached the EU principle of fiscal neutrality.
The UK exemption for gaming fell within VATA 1994, Sch. 9, Grp. 4, item 1, including comparator games such as casino roulette, electronic roulette, online gaming and over the counter bets on virtual games. FOBT's were excluded from the exemption for the periods in question by way of Note (1) (d) to Grp. 4. The Appellants, members of the Betfred Corporate Group, made claims for overpaid Value added tax (VAT) on FOBTs under VATA 1994, s. 80, for periods between December 2005 and January 2013. HMRC rejected the claims and the FTT was now asked to consider whether different VAT treatment of FOBTs, from those under the exemption, breached the principle of fiscal neutrality.
In R & C Commrs v Rank Group plc (Joined Cases C-259/10 and C-260/10) [2011] BVC 389, (Rank) the ECJ had confirmed that different tax treatment of similar supplies, such as roulette, compared with online and other versions, breached the principle of fiscal neutrality. Following Rank the FTT set out a two-stage test to establish similarity. Firstly, taking into account the characteristics of each game and avoiding artificial or insignificant differences, could FOBT supplies and other games be categorised. Secondly, taking the point of view of an average customer, did any particular elements of a game impact on the choice made as to what games to play. This would involve analysing characteristics including, minimum and maximum stakes and prizes, chances of winning, return ratios, (total prizes as a percentage of total stakes), speed of play, events or games available and possibility of interaction.
HMRC accepted that FOTB roulette and comparator games were in the same category but were not similar. They were subject to a maximum stake of £100 and prize of £500, whereas electronically or online games had no legal limits. However, there was no evidence that this influenced the average customer and stakes were similar, whether played on FOBTs or online. Chances of winning were the same for all methods of play, there were differences in speed of play but customers liked this. A player could not influence a game of roulette in either form. The FTT concluded that players had their needs met, whether through a FOBT or a comparator game and there was a breach of the principle of fiscal neutrality, see paragraph 68 of the decision.
FOBT slots, category B3 and s. 34 Category C games involved slot machines with reels containing characters such as numbers, symbols etc. Comparator games were played online and on B3A machines. Rank had confirmed that all slot games fell into the same category but HMRC did not agree they were similar here. There was very little difference in stake and prize money or speed of play and players could not influence the outcome in any way. The FTT concluded there was a breach of the principle of fiscal neutrality, see para. 84.
Virtual racing involved betting on a virtual horse or dog race determined by way of a random number generator. The FTT concluded that they fell into a single category. The average stake value was relatively low compared to the maximum available and therefore maximum or minimum stakes or prizes had no effect on decision making. Prize ratio to percentage of stakes made was similar and format and interaction were materially identical. The FTT concluded they were similar and there was a breach of the principle of fiscal neutrality, see para. 94.
Virtual card games included blackjack and poker. The FTT found that they fell into a single category being materially identical. There was no difference in accessibility. The average stake for FOBT machines was relatively low whereas online card games had a wide range of stake money, however, the FTT did not consider this had a significant influence. Speed had little impact on players choice and there was no difference in the games played on FOBT machines or online, including ability to influence. The FTT concluded they were similar and there was a breach of the principle of fiscal neutrality, see para. 103.
Bingo was played on FOBT machines and online, although there was not enough evidence to compare FOBT versions and B3A machines. The FTT considered them a single category and on the limited evidence there was little difference. The FTT concluded there was a breach of the principle of fiscal neutrality see, para. 107.
Finally the Appellants argued that other virtual games such as Spoof, where a customer bet on how many coins would be held in a hand, breached the principle of fiscal neutrality. The FTT agreed but deferred on other games due to a lack of evidence, para. 110.
This case will be of interest to those with claims outstanding pre-2005. From February 2013 machine game duty became the main method of raising revenue on gaming machines, VATA 1994, s. 23 and 23A and such supplies became exempt.
[1] The Appellants appeal against decisions of the Respondents (“HMRC”) rejecting the Appellants' claims, under section 80 of the Value Added Tax Act 1994 (“VATA94”), for the repayment of VAT accounted for on supplies of gambling by means of fixed odds betting terminals (“FOBTs”) between 6 December 2005 and 31 January 2013 (the “Claim Period”).
[2] During the Claim Period, the provision of facilities for placing bets or playing games of chance was an exempt supply under item 1 of Group 4 of Schedule 9 to VATA94. In the same period, supplies made through FOBTs were subject to VAT at the standard rate because FOBTs were “gaming machines” as defined by section 23 VATA94 and, as such, excluded from the exemption by Note (1)(d) to Group 4 of Schedule 9 to VATA94. Throughout the Claim Period, casino roulette, electronic roulette, online gaming, and over the counter bets on virtual games (“the comparator games”) were exempt from VAT. The Appellants accept that the United Kingdom could lawfully limit the scope of the exemption of betting, lotteries and other forms of gambling but contend that was subject to the EU law principle of fiscal neutrality. The Appellants considered that the games supplied through FOBTs, which were taxable, were similar to the comparator games played in casinos and online which were exempt and that the different treatment of the supplies for VAT purposes breached the principle of fiscal neutrality. Based on their view, the Appellants made their claims for repayments of overpaid VAT. HMRC rejected the claims on the ground that the supplies were not sufficiently similar to engage the principle of fiscal neutrality. The Appellants appealed.
[3] The quantum of the claims is not agreed and the parties have not asked us to determine it at this stage. Accordingly, the only issue for determination in this decision is whether the Appellants' supplies of the FOBT games during the Claim Period were similar to one or more of the comparator games for the purposes of the principle of fiscal neutrality so that the different VAT treatment of those supplies breached that principle.
[4] In addition to the Appellants' claims in relation to overpayment of VAT on supplies made through FOBTs, the Appellants made claims for VAT overpaid on supplies of gambling from other gaming machines, known as section 34/category C machines. These represent less than 1% of the total claims by value. During the hearing it was agreed, for reasons that need not be set out here, that we did not need to consider the grounds of appeal in relation to the section 34 and category C machines in this decision but that the parties will decide whether and, if so, how to take any appeal in relation to those machines forward and communicate that to the Tribunal within a period of three months following the release of this decision. Accordingly, we do not consider those supplies further in this decision.
[5] The interpretation and effect of the relevant provisions of Directive 77/388 (“Sixth VAT Directive”) and Council Directive 2006/112/EC (“Principal VAT Directive”) and the UK legislation that implemented them in the Claim Period can be summarised as follows:
- Throughout the Claim Period, Member States were required, first by article 13(B)(f) of the Sixth VAT Directive and then by article 135(1)(i) of the Principal VAT Directive, to exempt from VAT betting, lotteries and other forms of gambling, subject to conditions and limitations laid down by each Member State.
- Before 6 December 2005, supplies of the provision of gambling by means of FOBTs were exempt from VAT under item 1 of Group 4 of Schedule 9 to VATA94. The supply of a game of roulette, for example, was exempt whether played in a casino at a table or on an electronic roulette machine or FOBT, whether located in a casino or elsewhere, or online.
- With effect from 6 December 2005, the UK VAT legislation was amended and supplies of gambling by means of FOBTs were excluded from the exemption and made subject to VAT at the standard rate. The supply of a game of roulette played in a casino at a table or on an electronic roulette machine or online continued to be exempt.
- With effect from 1 February 2013, the UK VAT legislation was amended and supplies of gambling by means of FOBTs were once more exempt from VAT but became subject to Machine Games Duty.
[6] In summary, the UK VAT legislation provided that gambling by means of a FOBT was exempt before 6 December...
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