Bookmakers again find themselves in the media spotlight. Betfred has successfully appealed to the First Tier Tax Tribunal that it wrongly accounted for VAT on income generated from Fixed Odds Betting Terminals (FOBTs) between 2005 and 2013. Media sources suggest that this could be worth £100m in VAT refunds to Betfred whilst the wider industry could see refunds totalling £1bn.
The Tribunal found that most of the games offered by FOBTs are sufficiently similar to VAT exempt games played in casinos including live or automated roulette played via terminals and slots games played on B3A machines or played online. It is therefore a breach of fiscal neutrality to treat FOBTs differently for VAT purposes.
This decision will also affect other bookmakers who have submitted claims for overpaid VAT pending the outcome of the Betfred case. It could also have much wider ramifications too.
Readers may recall the Rank Linneweber 1 or “Slots” case which was ultimately decided in favour of HMRC by the Supreme Court in 2015. This related to a reclaim of overpaid VAT on slots machines in the period 2002-2005. Rank’s argument was that by treating certain machines (section 16/21) differently for VAT purposes that this breached the principles of fiscal neutrality. Although unsuccessful, Rank has a further appeal lodged with the Tribunal. The argument in Rank Linneweber 2, or “Rank FOBT” is that slot machines are sufficiently similar to certain games offered on FOBTs. If either are treated differently for VAT purposes, then this is a breach of fiscal neutrality.
This argument extends to arcades, pubs, clubs and other licensed premises with slot machines who also have claims lodged at the Tribunal pending the outcome of Rank FOBT appeal. A claim period up to 2013 (when slot machines became VAT exempt and subject to Machine Games Duty) could easily see another £1bn cost to Treasury in addition to the amounts to be repaid to bookmakers.
Whilst the Betfred decision will be welcomed by the industry we would expect HMRC to appeal to the Upper Tribunal given the amounts involved and wider ramifications to the Rank FOBT appeal. The Rank Slots case was contested all the way to the Supreme Court and it is difficult to see either losing party walking away in the Betfred or Rank FOBT cases until all avenues of appeal have been exhausted.
Industry may also want to be wary of the potential for HMRC to clawback any Treasury losses through other means. There has already been talk of an increase in Remote Gaming Duty (currently 15%) and Government could delay the implementation of a reduction in maximum stakes on FOBTs whilst simultaneously increasing the relevant rate of Machine Games Duty (currently 25%). Any gains from this litigation may therefore only be short term.
The matter is unlikely to be settled quickly. The interaction between Betfred and Ranks cases and appeals to the higher courts could mean that any ultimate decision is not received until perhaps 2025 or even later.
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