A-G for Scotland v KE Entertainments Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 18 July 2016 |
| Neutral Citation | [2016] UKFTT 508 (TC) |
| Date | 2016 |
| Year | 2016 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge Ruthven Gemmell WS, Member Peter R Sheppard FCIS, FCIB, CTA
Value added tax – Taxable amount – Taxpayer charging fee for participation in bingo sessions – Tax payer recalculating liability to tax in accordance with business brief and Notice published by HMRC – Taxpayer giving effect to recalculation by issuing an internal credit note – Taxpayer making retrospective claim for over payment of tax – Whether recalculation resulted in a “decrease in consideration for a supply which includes an amount of VAT” within the meaning of reg. 38 – Yes – Value Added Tax Regulations 1995, (SI 1995/2518), reg. 24 and 38 – Appeal allowed.
In KE Entertainments Ltd, the First-tier Tribunal (FTT) ruled that recalculation of the value of bingo participation fees resulted in a decrease in consideration.
KE Entertainments Ltd (KE) appealed against a decision of HMRC that it should not have made an adjustment to its Value added tax (“VAT”) return for period 12/12 in the sum of £460,630.36. Historically, KE had accounted for output tax on bingo participation fees on a game by game basis, in accordance with HMRC's published guidance at the relevant time. However, Business Brief 07/07 issued by HMRC in February 2007 and Notice 701/27 issued in September of that year indicated that VAT should be accounted for on a session by session basis. This allowed KE to reduce the value of the participation fees on which VAT was payable. KE issued an internal credit note resulting in the disputed repayment claim.
The issue in this appeal had been previously considered in the case of Carlton Clubs plc TAX[2011] TC 01389, in which the FTT found in favour of the taxpayer, holding that it was correct to make an adjustment of the kind now made by KE. HMRC, despite disagreeing with the findings of the tribunal, did not appeal that decision and it was common ground that the decision, being a FTT decision, was binding only on the parties to the appeal. Nevertheless, KE relied on the Carlton Clubs plc decision as authority for its VAT adjustment. The principal issue in the appeal was whether a recalculation of the value of bingo participation fees paid by KE's customers on a session basis rather than on a game basis resulted in a “decrease in consideration for a supply, which includes an amount of VAT” within the meaning of Value Added Tax Regulations 1995 (SI 1995/2518), reg. 38.
The parties agreed a common statement of facts which made it clear that customers paid a fixed sum to participate in a session of cash prize bingo. For the purposes of VAT, this sum was divided into a stake and a participation fee. The stake was used to fund the prize for the winner and was not consideration for any supply. The participation fee was the only sum received by KE for its own use and was taxable. The commissioners contended 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, then, in HMRC's opinion, there had been no decrease in the sum properly attributable to participation in the bingo session.
HMRC took the view that since there had not been a change in the “consideration for a supply” reg. 38 did not apply. Therefore, a claim such as that made by KE should have been made under Value Added Tax Act 1994 (“VATA 1994”), s. 80 and be subject to the then three year statutory time limit. According to HMRC, KE's claim was out of time and its reliance on reg. 38, which does not impose time limits for adjustments, was intended merely to circumvent the statutory time limit.
HMRC contended that Carlton Clubs plc had been wrongly decided. KE had miscalculated the actual taxable amount of its supplies of bingo in the period 1996 to September 2004. It had consequently declared output tax which was not output tax due and was, therefore, overpaid VAT. HMRC conceded that KE had a right to obtain a refund by means of VATA 1994, s. 80 but submitted that KE had brought its claim eight years after the end of the statutory claim period within the scope of reg. 38 because, at the relevant time, claims under s. 80 became time-barred three years after the end of the relevant prescribed accounting period. In any event, according to HMRC, there was no price reduction or decrease in consideration for the credit note issued by KE to evidence.
The FTT held that when Business Brief 07/07 was issued a line was drawn for calculating the tax due on participation fees. The drawing of that line did affect the calculation of the consideration which in turn affected the calculation of the taxable amount and, consequently, the amount of VAT. In the opinion of the FTT, such a change fell within the scope of reg. 38 and was not an error. Where the calculations were changed or adjusted by moving from a game basis to a session basis, there must have be a decrease in the consideration properly attributable to the supply of the right to participate in a bingo session.
In relation to KE's credit note, the FTT was satisfied that the decrease was duly recorded, that the claim was not fictitious and that HMRC were able to verify the adjustment. Accordingly, it met the requirements of reg. 24 and 38 construed in the light of, and having regard to the purpose of EC Directive 77/388 (the sixth VAT directive), art. 11(C)(1). In accordance with the FTT's findings in Carlton Clubs plc, the recalculation of the value of participation fees paid by KE's customers on a session basis rather than a game basis resulted in a “decrease in consideration for a supply which includes an amount of VAT” which occurred after the end of the prescribed accounting period in which the original supply took place, within the meaning of reg. 38. Appeal allowed.
This decision is consistent with the findings of the FTT in the almost identical case of Carlton Clubs plc v R & C Commrs that the change in the basis of calculation of VAT arose from the revised policy of HMRC and resulted in a decrease in consideration falling within the scope of reg. 38. It is difficult to understand why HMRC, having been unable to defend that appeal, did not either accept the tribunal's decision and apply it to the many other affected businesses or appeal the decision to the Upper Tribunal.
Roderick Cordara QC, instructed by EY, appeared for the appellant
Peter Mantle, Barrister, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
[1] This is an appeal by KE Entertainment Limited (“KE”) of 39 Rosslyn Street, Kirkcaldy, Fife, Scotland, against a decision dated 21 March 2013 issued by the Commissioners of HM Revenue and Customs (“HMRC”) that KE should not have made an adjustment in the sum of £460,630.36 to its VAT return for the period ending 12/12. HMRC issued an assessment, on the same day, for the sum of £460,626.34 [a £4.02 difference] based on that decision.
[2] The issue in this appeal was considered by the First-tier Tribunal in the case of Carlton Clubs plc TAX[2011] TC 01389 (“Carlton Clubs”) (Appendix 1) which determined the appeal in favour of Carlton Clubs holding that it was correct to make a like adjustment in like circumstances to that made by KE. HMRC did not appeal against that judgement explaining that the reason for this may have been a difference of opinion between two policy bodies within HMRC and that they had not taken specialist legal advice within the time period allowed for an appeal.
[3] The Carlton Clubs decision, being a First-tier Tribunal decision, was only binding on the parties and, accordingly, when considering the claim by KE, HMRC decided not to apply it although the circumstances were virtually identical. HMRC's view, therefore, was that Carlton Clubs was incorrectly decided. KE seek to rely on the Tribunal's reasoning in Carlton Clubs in support of its grounds of appeal to this Tribunal. The parties were reminded that the decision in KE's case of this Tribunal will also be only binding on the parties to it.
[4] Mr Roderick Cordara and the instructing accountants appeared/acted in Carlton Clubs and Mr Sheppard, the Member in this case, was also the Member in Carlton Clubs.
[5] By means of an Order released on 16 June 2014, the KE case was ordered to proceed as the Lead Case pursuant to rule 18(2)(a) of the Tribunal Procedure (Firsttier Tribunal) (Tax Chamber) Rules 2009 (“the First-tier Tribunal Rules”) for the related cases of New Empire Bingo Club Ltd (TC/2013/02866) and New Globe Bingo & Social Club Limited (TC/2013/03157). It was confirmed at the hearing that both these companies, and KE, operated in Scotland. HMRC confirmed that they have a great many other cases dealing with the same issues in relation to taxpayers based in England.
[6] The application for a Lead Case stated: “Each of the Appellants' businesses are similar in nature and therefore the facts in each appeal relating to how the participation fees have been paid and should be calculated are the same or sufficiently similar and the same issue of law is common in all three appeals”.
[7] The principal issue in this appeal, set out in the Direction of the Tribunal released on 16 June 2014, is “Whether or not a recalculation of the value of the participation fees paid by KE's customers on a session by session basis rather than game by game basis, as stated by the Commissioners to be the correct approach in their Business Brief 07/07, results in a “decrease in consideration for a supply, which includes an amount of VAT”, which occurred after the end of the prescribed accounting period in which the original supply took place, within the meaning of regulation 38 of the Value Added Tax Regulations 1995?”.
[8] The parties agreed a Statement of Common Issues and Facts dated 27 March 2015 which amongst other matters stated ...
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A-G for Scotland v KE Entertainments Ltd
...(Tax Chamber), which allowed the taxpayer's appeal, substantially adopting the reasoning of the tribunal in the Carlton Clubs case [2016] UKFTT 508 (TC). HMRC appealed to the Upper Tribunal (Tax and Chancery Chamber), which refused the appeal [2017] STC 1895; but its further appeal to the ......