London Clubs Management Ltd v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 October 2010 |
| Neutral Citation | [2010] UKUT 365 (TCC) |
| Date | 05 October 2010 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2010] UKUT 365 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Proudman J.
Alison Foster QC and Richard Smith (instructed by the Solicitor to HM Revenue and Customs) for the appellant.
Andrew Hitchmough and Jonathan Bremner (instructed by BDO LLP) for the respondent.
The following cases were referred to in the judgment:
Aspinall's Club LtdVAT No. 17,797; [2003] BVC 4,032
Banbury Visionplus Ltd v R & C CommrsVAT [2006] BVC 552
BLP Group plc v C & E CommrsECASVAT (Case C-4/94) [1995] BVC 159; [1995] ECR I-983
Camden Motors (Holdings) LtdVATNo. 20,674; [2008] BVC 2,442
C & E Commrs v Midland Bank plcECASVAT (Case C-98/98) [2000] BVC 229; [2000] ECR I-4177
Dial-a-Phone Ltd v C & E CommrsUNKVAT [2004] EWCA Civ 603; [2004] BVC 640
Edwards (HMIT) v BairstowTAXELR (1955) 36 TC 207; [1956] AC 14
R & C Commrs v Procter & Gamble UKVAT [2009] BVC 461
Royal Bank of Scotland Group plc v R & C CommrsECASVAT (Case C-488/07) [2009] BVC 248; [2008] ECR I-10409
St Helen's School Northwood Ltd v R & C CommrsUNKVAT [2006] EWHC 3306 (Ch); [2007] BVC 58
Skatteverket v AB SKF (Case C-29/08) [2009] ECR I-10413
Vision Express (UK) Ltd v R & C CommrsUNKVAT [2009] EWHC 3245 (Ch); [2010] BVC 208
Value added tax - Residual input tax - Partial exemption special method (PESM) - Taxpayer casino making gaming and catering supplies - Whether new floor-area based PESM more fair and reasonable than previous turnover based PESM - HMRC's appeal dismissed - Value Added Tax Act 1994, Value Added Tax Act 1994 section 26 subsec-or-para 3s. 26(3) - Value Added Tax Regulations 1995, regs. 101, 102.
This was an appeal by HM Revenue and Customs against a decision of the First-tier Tribunal ([2009] UKFTT 201 (TC); [2009] TC 00154) allowing the taxpayer's appeal against HMRC's rejection of its floor area based partial exemption special method (PESM) in relation to a residual input tax claim for VAT on its business.
The taxpayer was the representative member of a VAT group which operated 11 casinos in the UK. Its activities generated both taxable and exempt supplies. Table gaming supplies, for example roulette and blackjack, were subject to gaming duty and were exempt from VAT. Slot machines and (until 27 April 2009) poker rooms were subject to standard rate VAT. Supplies of catering and other entertainment were also standard-rated, save where given away free. Thus the taxpayer's activities were partially subject to VAT and partially exempt. Directly attributable input tax was treated on the same basis as the supplies to which it related. The appeal related to allocation of residual input tax, which was not directly attributable either to taxable or exempt supplies.
The standard method for attribution of residual input tax was an apportionment according to the relative extent to which goods or services were used in making exempt and taxable supplies. PESMs were permitted where that would secure a fairer and more reasonable attribution of input tax to taxable supplies than the standard method. Until 21 March 2007 the taxpayer used a modified turnover-based PESM. It provided for recovery of residual input tax based on turnover. However, it was not the standard method because it made special provision for food and drink supplied free of charge to certain gaming customers. It was therefore a PESM for the purposes of the Value Added Tax Regulations 1995, reg. 102. The taxpayer then proposed a PESM focusing on a floor based measure of use and overheads which resulted in recovery of a higher proportion of residual input tax.
The issues before the tribunal were whether the new PESM fairly and reasonably represented the taxpayer's use of residual VAT bearing inputs and, if so, whether the new PESM represented that use more fairly and reasonably than the previous PESM. The tribunal decided both issues in favour of the taxpayer.
The tribunal found that the taxpayer's catering activities were businesses in their own right and were not merely ancillary to the gaming business. HMRC appealed arguing that on a proper analysis it could be seen that the taxpayer's business was overwhelmingly concerned with making supplies of exempt gaming, to which catering and other non-gaming activities were ancillary. The taxpayer submitted that the findings that there were discrete businesses were findings of fact which HMRC could not seek to disturb.
Held, dismissing the appeal:
1. "Use" was central under the legislation to input tax recovery. Input tax was recoverable by a business to the extent that its VAT bearing overheads were used to make taxable supplies. The "use" referred to in reg. 101 was not physical use but a special economic use for VAT purposes. The true nature and characterisation of the taxpayer's business was therefore essential to the principle of use. (Dial-a-Phone Ltd v C & E Commrs [2004] EWCA Civ 603; [2004] BVC 640, St Helen's School Northwood Ltd v R & C Commrs [2006] EWHC 3306 (Ch); [2007] BVC 58 and Skatteverket v AB SKF (Case C-29/08) [2009] ECR I-10413 considered.)
2. The findings of the tribunal as to whether activities constituted separate businesses was one of law which it was open to HMRC to contest. (Vision Express (UK) Ltd v R & C Commrs [2009] EWHC 3245 (Ch); [2010] BVC 208 distinguished.)
3. It was open to the tribunal to conclude that the taxpayer's activities were not solely gaming with ancillary catering. Although its conclusion was one of characterisation of the business and thus open to challenge on appeal, it was a value judgment based on the evidence before it. It did not matter that the catering activities were loss-making. The taxpayer's own management accounts, which did not apportion overhead costs between gaming and other activities, were one factor in the tribunal's overall economic analysis, but were not determinative of the question whether the new PESM was a fair and reasonable proxy for use. (Aspinall's Club Ltd Decision No. 17,797; [2003] BVC 4032 distinguished; Banbury Visionplus Ltd v R & C Commrs [2006] BVC 552 applied.)
4. HMRC's submissions to the effect that the PESM was unfair in that it did not take into account the actual use of the premises were rejected. The tribunal took into account evidence about staff areas in deciding that the floor-based method provided a fair and reasonable attribution of the overheads. It also took into account the fact that a floor-based method was appropriate where rent formed a large proportion of costs comprising the residual input tax. The tribunal's decision that the new PESM provided a fair and reasonable proxy was the proper conclusion on the basis of the evidence. The tribunal undertook a careful and detailed analysis of the taxpayer's business and applied the economic use test to the facts which it found. The evidence, accepted by the tribunal, was that the taxpayer had altered the nature of its business to make the best use of the premises. Although it was accepted that gaming was able to generate a higher turnover and profit for each square foot of the premises that it occupied as compared with the restaurants and bars, that did not lead to the conclusion that gaming was the principal user or consumer of the premises costs incurred and that, as a result, a partial exemption method had to reflect that in assuming greater use by the gaming part of the business.
5. The tribunal was entitled to hold that the new PESM was a more fair and reasonable proxy for the use of costs than the previous PESM. It was plain that the single largest pool of residual costs was the cost of the premises and, in particular, rent. The rent was calculated per square foot. As the various activities each occupied separate and distinct parts of the premises it was a straightforward matter to calculate the floor space occupied by each activity and apportion the rent and other property costs in that way. Moreover, the new PESM, unlike the previous PESM, would react automatically to changes in the businesses comprised in the taxpayer's undertaking. Thus if gaming areas were to be increased or decreased on the basis that that would offer a more profitable use of the space, there would be a corresponding automatic change in recovery of residual input tax.
1. This is an appeal in point of law under Tribunals, Courts and Enforcement Act 2007 section 11 subsec-or-para 1s. 11(1) of the Tribunals, Courts and Enforcement Act 2007 by Her Majesty's Revenue and Customs ("HMRC") against the decision of the First-tier Tribunal dated 5 August 2009 ([2009] UKFTT 201 (TC); [2009] TC 00154).
2. I start from the premise that, save on the grounds expounded by Lord Radcliffe in Edwards (HMIT) v BairstowTAX(1955) 36 TC 207; [1956] AC 14, the Court should not re-open primary findings of fact on an appeal under s. 11. The Tribunal's findings of fact ought not to be disturbed unless they are so perverse as to be insupportable. This is an appeal in point of law, not a re-hearing.
3. I also bear in mind that a legal evaluation may require "a multi-factorial assessment based on a number of primary facts" so that "the appeal court should be slow to interfere with that overall assessment - what is commonly called a value judgment": per Jacob LJ in R & C Commrs v...
To continue reading
Request your trial
-
Volkswagen Financial Services (UK) Ltd v Revenue and Customs Commissioners
...of the whole project from the beginning." 39 This general approach to economic use was approved by this court in Revenue and Customs Commissioners v London Clubs Management Ltd [2011] EWCA Civ 1323 which concerned a PESM for apportioning the residual input tax of a gambling business. Some ......
-
THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS v HIPPODROME CASINO LTD [2024] UKUT 00027 (TCC)
...to gaming. Rather, HMRC have made a distinct contention of dual use of the bar, restaurant and theatre areas. So this case 2 [2010] STC 2789 3 [2012] STC 388 19 does not involve a dichotomy of whether (say) the bar areas of the Hippodrome premises are ‘only’ for the purposes of the gaming (......
-
Volkswagen Financial Services (UK) Ltd v HM Revenue and Customs
...of an onward taxable transaction before it can be recovered by the trader. She referred to R & C Commrs v London Clubs Management LtdVAT[2010] BVC 1563 where (at [36]-[38]) Proudman J in the Upper Tribunal (Tax and Chancery) had rejected HMRC's submission that the supplies in question in th......
-
Volkswagen Financial Services (UK) Limited v The Commissioners for Her Majesty's Revenue & Customs, TC 01401
...before it can be recovered by the trader. She referred to Revenue 20 and Customs Commissioners v London Clubs Management Limited [2010] STC 2789 where (at [36] – [38]) Proudman J in the Upper Tribunal (Tax and Chancery) had rejected HMRC’s submission that the supplies in question in that ca......