"Spotting the Ball" Partnership and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 March 2013 |
| Neutral Citation | [2013] UKFTT 210 (TC) |
| Date | 05 March 2013 |
| Court | First Tier Tribunal (Tax Chamber) |
[2013] UKFTT 210 (TC)
Judge Kevin Poole, Shahwar Sadeque
Jonathan Peacock QC, instructed by Deloitte LLP, appeared for the Appellant
Andrew McNab of Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
VAT - exemption for games of chance - whether it applies to "Spot the Ball" - whether "Spot the Ball" is a "game" - held yes - whether it is a "game of chance" - held yes - exemption from VAT under VATA 1994, Value Added Tax Act 1994 schedule 9 group 4Sch. 9, Grp. 4 and predecessor provisions therefore applies in principle
The First-tier Tribunal decided that the taxpayer companies' panel "Spot the Ball" ("STB") activity, which involved the participants deciding where a football was most likely to be on a photograph, was a "game" within the context of the Gaming Act 1968 ("GA 1968"), s. 52(1) or the Value Added Tax Act 1994 ("VATA 1994"), Value Added Tax Act 1994 schedule 9 group 4Sch. 9, Grp. 4, note (3). An activity did not necessarily have to involve more than one person in some kind of interaction before it could be a "game". The Tribunal also decided that the activity was a "game of chance" for the purposes of GA 1968, s. 52 and VATA 1994, Value Added Tax Act 1994 schedule 9 group 4Sch. 9, Grp. 4, note (2). The activity involved a significant element of chance. The scanning system error that could occur when determining the winner could cause the element of skill to be insignificant such that the activity became a game of pure chance.
The taxpayer companies' appeal concerned the correct VAT treatment of an activity known as the panel STB over the period from 1979 to 2006. They claimed to have wrongly accounted for output VAT on the payments received from the participants of the activity in the relevant period and sought repayment of that output VAT. For purposes of the present hearing, the Tribunal had been asked to determine whether the panel STB was a "game" and, if so, whether it was a game of chance or a game of skill.
In the 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. Participants paid to submit a coupon with a number of crosses placed on it by them. Each cross represented an attempt to identify the most logical location of the centre of the missing football through the participants' use of their skill and judgment. There was a panel of football experts appointed by the promoter. After all the participants had submitted their coupons, the panel met and decided where, in their opinion, was the most logical position for the centre of the missing ball. All the participants' coupons which had been submitted were checked to see which of them included crosses closest to the position selected by the panel. Cash or other prizes were awarded to the winning participants.
Prior to 2002, the coordinates produced for the panel's selected spot by the use of a machine were used to produce "sifting masks". The coordinates were telephoned through to the other sifting offices, each of which had its own punch coordinate machine. From 2002 onwards, the sifting process had been replaced by computer scanning and calculation. The scanning process itself inevitably 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 potentially very large when compared to the accuracy of the subsequent calculations the location of the centre of that cross.
HMRC contended that the panel STB was not a "game" since there was no element of interaction between the players. Even if it was a "game", it was a game of skill in which the skill, judgment and logic of the competitors were judged.
(2) Whether the panel STB was a "game" within the context of GA 1968, s. 52(1) or VATA 1994, Value Added Tax Act 1994 schedule 9 group 4Sch. 9, Grp. 4, note (3).
(3) If so, whether it was a game of chance for the purposes of GA 1968, s. 52 and VATA 1994, Value Added Tax Act 1994 schedule 9 group 4Sch. 9, Grp. 4, note (2).
Held, finding in favour of the taxpayers on the preliminary issue:
The Tribunal held that an activity did not have to involve more than one person in some kind of interaction before it could be a "game". It was normal, for example, to refer to a "game of patience", which activity involved only the player and a pack of cards. Furthermore, the word "game" should be construed according to its ordinary meaning. According to the Shorter Oxford English Dictionary, it could variously be regarded as meaning an amusement, fun or sport, or as meaning a diversion, whether or not one in the nature of a contest played according to rules and decided by superior skill, strength or good fortune (Oasis Technologies (UK) LtdTAX[2010] TC 00581, applied). Thus, the panel STB was a "game", when considered in the context of GA 1968, s. 52(1) or VATA 1994, Value Added Tax Act 1994 schedule 9 group 4Sch. 9, Grp. 4, note (3).
In R v KellyUNK [2008] EWCA Crim 137, [2009] 1 WLR 701 ("Kelly"), the Court of Appeal held that Parliament had provided that games of combined skill and chance were to be treated as games of chance without any qualification. Thus, the only circumstance where chance should not be taken to make a game of skill and chance a game of chance was where the element of chance was such that it should be ignored on ordinary principles.
Here, the Tribunal held the central task in the panel STB, as presented to and performed by the participants, had always been to the use of their skill and judgment. However, it also involved a significant element of chance. In a situation where the thickness of a piece of paper could encompass hundreds of entries, and where "noise" in the scanning system could, incorrectly and apparently randomly, "move", an entry by more than two and a half times that thickness, it might well be arguable that any element of skill was insignificant for the purposes of the Kelly test, such that STB became a game of pure chance. The reality of the competition was that the most that skill and judgment could do was to estimate the approximate position to place the participant's cross. From that point on, chance almost entirely took over (News of the World Ltd v FriendWLR[1973] WLR 248, applied). Thus, panel STB was a game of chance for the purposes of the GA 1968, s. 52 and VATA 1994, Value Added Tax Act 1994 schedule 9 group 4Sch. 9, Grp. 4, note (2).
1.This appeal concerns the correct VAT treatment of a version of the activity known as "Spot the Ball" (referred to in this decision as "STB"). The version it is concerned with is "panel STB".
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 pay 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 footballers and/or others involved in the administration of the game. After all the participants have submitted their coupons, the panel meets and decides where, in their opinion, is the most logical position for the centre of the missing ball. They do not see the original "undoctored" photograph until after they have done so. All the participants' coupons which have been submitted are checked to see which of them include crosses closest to the position selected by the panel. Cash or other prizes are awarded to the participants who have placed their crosses closest to that position.
4.The reason for involving the panel was in order to structure the activity in a way which, it was believed, would avoid a particular part of the gaming regulatory legislation; it was not to do with VAT or other taxes.
5.The Appellants claim that they (or entities whose rights of action in that behalf have devolved upon them) have wrongly accounted for output VAT on the payments received from the participants over the period from 1979 to 2006, and they now seek a repayment of that output VAT (net of the associated input tax which was, they agree, wrongly deducted). In short, they claim the supplies were in fact exempt supplies. The sums involved are in the region of £72.5 million plus interest.
6.There are a number of issues between the parties, but for the purposes of this hearing we are asked to address only one of those issues and a decision in principle is required on it.
7.The point of principle to be determined is whether this version of STB is a "game" and, if so, whether it is a game of chance or a game of skill; 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 answer to this question will, for the reasons given below, determine whether the supplies in question were or were not properly taxable and may therefore remove the necessity for any discussion of the other issues between the parties.
8.In particular, we are not asked to determine at this stage whether the Appellants' claims should be precluded, in whole or in part, by reason of the lapse of time between the relevant events and the delivery of the Appellants' voluntary disclosures by which they made their claim, or on the...
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