Rank Group and Betfred win landmark victory in FOBT VAT dispute
Duo win legal case against HMRC after court rules in favour of operators on EU neutrality
Rank Group and Betfred have won the latest stage of their legal challenge against an HMRC decision to charge VAT on fixed-odds betting terminals (FOBTs) in a multi-million-pound legal case.
On Friday, judges at the UK Tax and Chancery Upper Tribunal service ruled that VAT charged on FOBTs was incorrectly levied and should be exempted from tax payments in a landmark ruling for the gambling industry.
HMRC initially charged VAT on FOBTs, asserting it had the right to do so under a 2005 law which excluded them from a prior EU VAT exemption on casino, online and electronic roulette machines.
Before December 2005, supplies of gambling by means of FOBTs were exempt from VAT, however UK legislation was changed with the effect that such supplies became standard rated for VAT purposes.
Using this justification, Rank Group was charged VAT on its gambling machines between 2002 and 2005, while Betfred was charged VAT on its own machines between 2005 and 2013.
Article 13B of EU directive 77/388 requires member states to exempt from VAT taxation “betting, lotteries and other forms of gambling, subject to conditions and 30 limitations laid down by each member state”.
Recent EU legal cases have established the precedent of so-called ‘fiscal neutrality’, which requires equal VAT treatment of similar supplies that are in competition within each member state.
Using this prior determination, Rank Group disputed HMRC’s VAT deduction, claiming an exemption could be claimed for FOBTs, filing a lawsuit against HMRC under pre-existing UK VAT law.
In its own legal challenge, Betfred asserted that HMRC had not separately identified games supplied via FOBTs such as roulette, casino and other games as not being exempt, meaning that the business could claim on the EU level exemption.
Following two separate lower court hearings in which HMRC lost, the cases were combined in this latest Upper Tribunal Court hearing. It is understood HMRC is currently weighing up a third appeal against the decision.
In its latest trading update Rank Group confirmed it had received £25.2m in incorrectly paid VAT from HMRC prior to the ruling after separately requesting the amount from the exchequer.
The ruling paves the way for other operators, including Betfred, to make similar claims against HMRC for any incorrectly paid VAT.