THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS v HIPPODROME CASINO LTD [2024] UKUT 00027 (TCC)
| Jurisdiction | UK Non-devolved |
| Judge | JUDGE VINESH MANDALIA,JUDGE RUPERT JONES |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Published date | 29 January 2024 |
Neutral Citation: [2024] UKUT 00027 (TCC)
Case Number: UT/2022/000081
UPPER TRIBUNAL
(Tax and Chancery Chamber) Hearing venue: Rolls Building, London
VAT – recovery of residual input tax – whether FtT erred in failing to determine whether there was
dual use of taxable supplies of entertainment & hospitality also for the non-taxable supplies of
gaming in the casino – whether a standard method override, using allocated floorspace, guarantees
a more precise determination of economic use and the proportion of recoverable input tax than the
standard method using proportion of turnover for taxable and non-taxable supplies
Heard on: 3-4 October 2023
Judgment date: 29 January 2024
Before
JUDGE RUPERT JONES
JUDGE VINESH MANDALIA
Between
THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS
Appellants
and
HIPPODROME CASINO LTD
Respondent
Representation:
For the Appellants: Matthew Donmall, counsel, instructed by the General Counsel and
Solicitor to His Majesty’s Revenue and Customs
For the Respondent: Andrew Hitchmough KC and Ronan Magee, counsel, instructed by
PricewaterhouseCoopers LLP
1
DECISION
INTRODUCTION
1. His Majesty’s Revenue and Customs (‘HMRC’) appeal against a decision of the First-
tier Tribunal (Tax Chamber) (‘the FtT’ or ‘Tribunal’) released on 22 March 2022 under neutral
citation [2022] UKFTT 110 (TC) (‘the Decision’). The FtT allowed appeals by Hippodrome
Casino Limited (“HCL”) against decisions of HMRC refusing HCL’s VAT claims to deduct
input tax based upon a Standard Method Override (‘SMO’). HCL relied on a floorspace
method by way of SMO to displace the standard method of apportioning residual input tax for
the tax years 2012/13 to 2018/19.
1
2. In summary, the FtT concluded that HCL’s means of apportioning and recovering input
VAT on HCL’s overhead expenditure by reference to floorspace more accurately reflected the
economic use of that expenditure than the standard turnover-based method of recovery
provided by Regulation 101 of the VAT Regulations 1995 (S.I. 1995/2518) (‘VAT
Regulations’). The FtT decided that the floorspace SMO provided a more fair, reasonable and
precise proxy of HCL’s economic use of its residual costs than the standard method and
allowed its appeals.
3. The FtT granted HMRC permission to appeal to the Upper Tribunal on five grounds of
appeal which are set out in more detail below.
4. HMRC’s main argument in this appeal (encapsulated in grounds 1-4) is that the FtT erred
in law in failing to address, and give any reasons for rejecting, their central contention that
floorspace used for taxable supplies such as entertainment were also being used for non-taxable
supplies of gaming. Central to HMRC’s case before the FtT was that the floor space SMO
Method was fundamentally flawed because it proceeded on the false premise the areas allocated
under that method to ‘bars’, ‘restaurant’ and ‘entertainment’ were only used for the purposes
of taxable supplies of hospitality and entertainment (subject to an adjustment in respect of free
complimentary supplies). HMRC’s case was that these areas were used economically both for
the purposes of taxable supplies and as important amenities for HCL’s exempt gaming business
(‘the Dual Use issue’).
5. HMRC submit that nowhere in the Decision did the FtT express a conclusion as to
whether the areas for bars, restaurant and theatre (or any of them) were also used economically
for the exempt gaming business. Rather, what the FtT did was to express a conclusion on an
incorrect test, namely whether or not the hospitality and entertainment businesses were “merely
an adjunct to, or amenity for, gaming” (see the Decision at [125]). HMRC argue that this is not
the test of economic use.
6. HMRC also contend, as a fifth ground, that the FtT erred in law in its failure to give any
or adequate reasons for rejecting HMRC’s other points in the appeal.
1
More precisely, there were two appeals to the FtT from two decisions of HMRC. The first appeal,
TC/2018/05373, was against the refusal on review by HMRC dated 11 July 2018 for HCL’s claim on
the basis of a SMO for the tax years 2012/13 to 2015/16. The second appeal, TC/2021/01140, was
against an HMRC decision dated 9 October 2020, upheld on 5 March 2021, rejecting the Appellant’s
claims for repayment in respect of residual input tax calculated on the basis of a SMO for 2016/2017
and 2017/2018, as well as Capital Goods Scheme adjustments for years 2016/2017, 2017/2018 and
2018/2019.
2
THE LEGAL FRAMEWORK
7. The FtT set out the relevant legal framework at [6] to [27] of the Decision (references in
square brackets are to paragraphs of the Decision). Insofar as is material, the relevant
provisions are contained in Articles 168 & 173-175 of Directive 2006/112/EC (the “Principal
VAT Directive” or “PVD”).
8. Article 173(1) of the Principal VAT Directive provides for the deductibility of VAT in
respect of supplies (of goods or services) which are used for both taxable and non-taxable
transactions:
In the case of goods or services used by a taxable person both for transactions
in respect of which VAT is deductible pursuant to Articles 168, 169 and 170,
and for transactions in respect of which VAT is not deductible, only such
proportion of the VAT as is attributable to the former transactions shall be
deductible.
The deductible proportion shall be determined, in accordance with Articles 174
and 175, for all the transactions carried out by the taxable person.
9. Article 174(1) makes provision for the standard method of calculating the deductible
proportion by way of turnover:
The deductible proportion shall be made up of a fraction comprising the
following amounts:
(a) as numerator, the total amount, exclusive of VAT, of turnover per year
attributable to transactions in respect of which VAT is deductible pursuant to
Articles 168 and 169;
(b) as denominator, the total amount, exclusive of VAT, of turnover per year
attributable to transactions included in the numerator and to transactions in
respect of which VAT is not deductible.
10. Article 173(2) makes provision for alternative methods of attribution: Member States
may: “authorise or require the taxable person to make the deduction on the basis of the use
made of all or part of the goods and services” [Emphasis Added].
11. These articles are implemented into UK law by the Value Added Tax Act 1994
(“VATA”) and the Value Added Tax Regulations 1995 (“the VAT Regulations”) that are made
under that Act.
12. Section 24(1) VATA defines input tax:
‘Subject to the following provisions of this section, “input tax”, in relation to a taxable
person, means the following tax, that is to say—
(a) VAT on the supply to him of any goods or services; […] being (in each case) goods
or services used or to be used for the purpose of any business carried on or to be carried
on by him…’
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