Rank Group Ruling Leaves HMRC Facing GBP500m VAT Reclaim Bill

by Robin Pilgrim, LawAndTax-News.com, London

09 June 2009

The High Court in London has upheld a claim by Rank Group plc for overpaid value-added tax on games of interval bingo and gaming machines, a decision which could lead to hundreds of millions of pounds worth of similar claims from other leisure companies.

The latest legal decision supports last year's rulings by the VAT & Duties Tribunal that the inconsistent application of VAT to interval bingo and gaming machines contravened the European Union's principle of fiscal neutrality.

Rank received GBP59.1m from HM Revenue & Customs (HMRC) in respect of VAT paid on interval bingo between 2003 and 2008 as a result of the Tribunal’s ruling. Rank is entitled to interest on this claim.

Rank's claim for GBP26m of VAT paid on gaming machines between 2002 and 2005, has also been upheld by both the Tribunal and the High Court. The Tribunal is scheduled to reconvene during October 2009 to rule on a number of outstanding considerations, including whether its ruling should apply to the claim period in its entirety.

HMRC has until June 29, 2009 to submit an appeal against the High Court's rulings.

Tony McClenaghan, senior indirect tax partner at Deloitte, who advised Rank, said: “This is a landmark decision endorsing one of the most important principles of Community law, fiscal neutrality. This underpins fair and effective tax policy. It remains to be seen whether HMRC will appeal the decision, however, the decision of both the VAT Tribunal and the High Court are clear and unequivocal and we would expect the Court of Appeal to share this view.”

McClenaghan added: “The same principles should apply to any taxpayer which has paid VAT on the income from these activities. Other organizations in the leisure industry should consider their own grounds to submit claims for overpaid VAT and interest to HMRC following the guidance laid down by the High Court in this ruling.”

According to Deloitte, the interval bingo appeal concerned identical supplies of bingo games, one played under Section 14 of the Gaming Act 1968 and one played under Section 21 of the 1968 Act, the former being subject to VAT, and the latter being exempt from VAT. Because it was established that the games were identical, HMRC failed to persuade the High Court that there was any objective basis for the differential in tax treatment. This resulted in a breach of fiscal neutrality.

The gaming machines appeal, referred to as the "Slots appeal", concerned supplies of certain gaming machines which were subject to VAT, and other similar gaming machines which were treated as exempt from VAT. This also caused a breach of fiscal neutrality and distortion of competition. HMRC amended the law in 2005, to tax all of these gaming machines.

Barney Horn, indirect tax partner at Deloitte, commented: “This decision upholds the principles set out by the European Court of Justice in the Linnewebber case. This requires the same or similar services to be treated in the same way for the purposes of VAT. Both the VAT & Duties Tribunal and now the High Court have accepted this argument and upheld Rank’s claim for overpaid VAT.”

Describing the High Court's judgment as "significant" and a "strong decision" in favour of the Rank Group, Deloitte believes the total of overpaid VAT due to the UK leisure industry could amount to GBP500m.

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