Revenue and Customs Comrs v Sportech Plc and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 16 September 2014 |
| Neutral Citation | [2014] UKUT 398 (TCC) |
| Date | 16 September 2014 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2014] UKUT 0398 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Mr Justice Norris
Mr Andrew Macnab, instructed by the General Counsel and Solicitor to HMRC appeared for the Appellants
Mr Jonathan Peacock QC, instructed by Deloitte LLP, appeared for the Respondents
Value added tax - Exemption for playing games of chance during the period from 1979-2006 under Value Added Tax Act 1994 ("VATA 1994"), Value Added Tax Act 1994 schedule 9 group 4Sch. 9, Grp. 4 and predecessor provisions, such as Finance Act 1972 ("FA 1972"), Sch. 5, Grp. 4 - (1) Whether "Spot the Ball" competition is a "game" - (2) Whether entrants "play a game of chance" - Appeal by HMRC allowed.
The Upper Tribunal (UT) allowed HMRC's appeal against the decision of the First-tier Tribunal (FTT) ("Spotting the Ball" PartnershipTAX[2013] TC 02624) that exemption, rather than standard-rating, applied to fees paid by those playing Spot the Ball (STB).
The case concerned output tax accounted for by IFX Investment Co Ltd, Sportech plc and other operators during the period from 23 April 1979-31 December 2006 relating to a STB competition, where entrants placed an "X" to indicate where they thought the missing ball was on a photo of a football match. The operators unsuccessfully argued that it was a game of chance, not skill, so that exemption applied to the fees paid by the entrants.
The case concerned the treatment of an activity known as the panel STB over the period from 1979-2006. The operators claimed to have wrongly accounted for output VAT on the payments received from the entrants and sought repayment of that output VAT. The issues were
(2) whether the panel STB was a "game"; and
(3) if so, whether it was "playing a game of chance" or a game of skill.
In panel STB, a photograph was taken of a football match. The football was removed from that photograph along with much of the rest of the background. The doctored photograph was published on a printed coupon. Entrants paid to submit a coupon with a number of crosses placed on it. Each cross represented an attempt to identify the most logical location of the centre of the missing football through the entrants' use of their skill and judgment. There was a panel of football experts appointed by the promoter. After the entrants had submitted their coupons, the panel decided where was the most logical position for the centre of the missing ball. The entrants' coupons were checked to see which included crosses closest to the position selected by the panel. Prizes were awarded to the winners.
Before 2002, the co-ordinates produced for the panel's selected spot by the use of a machine were used to produce "sifting masks". The co-ordinates were telephoned through to the other sifting offices, each of which had its own punch co-ordinate machine. From 2002 onwards, the sifting process was replaced by computer scanning and calculation. The scanning process involved some "noise". As a result of the noise, the scanned image might be as much as three pixels "out" from the original coupon. That error was large when compared to the accuracy of the calculation of the location of the centre of that cross.
The rules did not tell an entrant how to mark the centre of the ball, beyond the invitation to use "skill and judgment". An entrant who chose to select the spot by throwing a dart at the coupon and marking with a cross where the dart landed would submit an entry that was just as valid as that of an entrant who, drawing on years of experience as a player and spectator, conducted a painstaking analysis of the information. Nor did the rules say anything about one entrant's relationship with any other: they dealt only with how to enter. The rules concerned:
(2) how the panel should make its judgment; and
(3) how to select the closest entry.
In finding for HMRC, the UT held that:
(2) STB competitions did not involve providing facilities for playing a game of chance; and
(3) there was no "game", which was reflected by the absence of rules about how to play and the fact that completing and posting a coupon cannot be considered to be "playing" (para. 21-23 and 44 of the decision).
The case concerns output tax accounted for by operators relating to a "Spot the Ball" competition where entrants placed an "X" to indicate where they thought the missing ball was on a photo of a football match. The operators unsuccessfully argued that it was a game of chance, not skill, so that exemption applied to the fees paid by the entrants. Although the parties argued about the meaning of the words "game" and "chance", the real issue was interpreting the meaning of the phrase "the playing of any games of chance". For this purpose, a game of chance and skill combined (or a game that involves both an element of chance and an element of skill) is treated as a game of chance. The operators had claimed repayment about £72m, being over-declared output tax (but net of over-claimed input tax). The significant amount of VAT at stake means that this case could go higher.
[1]From 1978 operators who ran "Spot the Ball" activities were regulated and taxed as if they ran competitions for which entrants paid a fee and in which there were winning entrants who were awarded prizes. In March 2009 the operators said that they were in fact offering "games of chance" in which players put up money and were sometimes lucky enough to win. The distinction is important for the purposes of VAT.
[2]Gambling is not an activity that readily lends itself to the application of VAT. So article 13(B)(f) of the Sixth Directive (77/388) provided for an exemption from VAT for:
Betting, lotteries and other forms of gambling, subject to conditions and limitations laid down by each member state.
In England and Wales the exemption of "betting, lotteries and other forms of gambling" from VAT was effected in Schedule 5 to the Finance Act 1972 where (under Group 4) there was made exempt:
The provision of any facilities for the placing of bets or the playing of any games of chance [and] the granting of a right to take part in a lottery.
I will call this "the Exemption".
[3]The operators of "Spot the Ball" made "voluntary disclosures" relating (a) to the period 23 April 1979 to 30 April 1997 and (b) to the period 1 May 1997 to 31 December 2006 in which they sought the recovery of VAT paid during those periods. On this appeal it is to be assumed that they were procedurally entitled to make these voluntary disclosures. This repayment claim was rejected by HMRC. The operators appealed against that decision to the First Tier Tribunal ("FTT") (Judge Kevin Poole and Shahwar Sadeque) who, on 5 March 2013, decided as a preliminary issue that "Spot the Ball" was indeed a "game of chance".
[4]The question for me on this appeal is whether the FTT made an error of law in reaching that conclusion: or to put the matter another way, whether the conclusion reached was open to the FTT on a proper understanding of the law.
[5]As I approach that task I make two general points. First, I bear in mind the observations made by Jacob LJ in R & C Commrs v Procter & Gamble UKVAT[2009] BVC 461 at para. [7] in these terms:-
… It is the tribunal which is the primary fact finder. It is also the primary maker of a value judgment based on those primary facts. Unless it has made a legal error in that in so doing (e.g. reached a perverse finding or failed to make a relevant finding or has misconstrued the statutory test) it is not for an appeal court to interfere.
Second, although the argument before the FTT and before me focussed on the meaning of the word "game" and the meaning of the word "chance", the real task is to construe the composite phrase "the playing of any games of chance" and to do so bearing in mind that its precise context was the implementation of an exemption granted for "betting, lotteries or other forms of gambling". That is important because, whilst there may be all sorts of uncertainties about the limits of the concept of "game" and the role of "chance" it may be quite clear that a particular activity is not "playing a game of chance".
[6]It is common ground that the FTT's description of the "Spot the Ball" activity is accurate:-
[2]In all versions of STB, a photograph is taken of a football match. The football is removed from that photograph (along with much of the rest of the background). The doctored photograph (which therefore includes the players, some part of the original background and a great deal of white space) is published on a printed coupon. Participants paid to submit a coupon with a number of crosses placed on it by them, each of which usually represents an attempt to identify as accurately as they can the most logical location of the centre of the missing football.
[3]In the "panel" version of STB, the participants' efforts are not compared with the actual position of the ball on the original photograph. Instead, there is a panel of football experts appointed by the promoter, comprised of former professional...
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