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Rank Group VAT Litigation - Latest

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4th November 2013

Businesses in the leisure industry were eagerly awaiting the latest decision of the UK Courts in the tussle between Rank Group plc and HM Revenue and Customs (“HMRC”).

This litigation relates to the VAT treatment of gaming machines, with Rank arguing that it is entitled to recovery of the VAT paid on gaming machine takings in a period of time prior to December 2005 on the grounds that certain “similar” machines benefitted from VAT exempt treatment thus leading to a breach in the EC tax principle of fiscal neutrality.

Last week (31 October 2013) the UK Court of Appeal ruled in favour of HMRC. It stated that despite running off remote random number generators, so-called section 16 machines were still “gaming machines” for VAT purposes (despite the fact that at the relevant period in time both HMRC and the Gaming Board came to the opposite conclusion). This is relevant as if this decision is correct the income from such machines should therefore have attracted VAT at the standard rate, which means that there can be no argument that the charging of VAT on other gaming machines led to a breach in the VAT principle of fiscal neutrality.

Although the decision referred to above is disappointing and has come as a shock to the industry, it is by no means the end of the road for such claims. Indeed, Rank has applied for leave to appeal to the Supreme Court and it is hoped that such an application will be granted. However, even if the section 16 argument is unsuccessful, Rank still has the argument that its standard gaming machines are “similar” to Fixed Odds Betting Terminals operated by bookmakers, which there can be no doubt fell within the VAT exemption. This argument has been put to one side pending resolution of the section 16 point; however, it is important to note that Rank only has to succeed with one of these arguments for its claim (and subsequently other similar claim) to eventually succeed.

It is necessary to note that we remain relatively confident that one way or another the claims for VAT overpaid in the period of time prior to December 2005 will ultimately succeed.

In terms of time-scales, it is likely to be at least twelve months before an appeal to the Supreme Court is heard (assuming that leave to appeal is granted). Although HMRC have not yet responded to last week’s decision of the Court of Appeal, it is possible that they will now seek to recover the VAT and interest (plus additional interest) that they have previously refunded to businesses in relation to the pre-2005 claims. Affected businesses should therefore prepare for this possibility.

It is also necessary to note that claims have also been submitted for VAT declared by gaming machine operators in the post 2005 period of time. These claims are completely unaffected by the latest development in the Rank case as they are based on different “comparator” machines and reflect a different legal regime. We therefore remain confident that the claims for later periods will succeed even if the Rank litigation in relation to the pre-2005 claims is ultimately decided in favour of HMRC. However, it is unlikely that the claims for post 2005 claims will be settled for at least a couple of years. In the meantime it will be necessary to extend such claims to ensure that they include the entire period of time up until the commencement of Machine Gaming Duty earlier this year.

 Should you wish to discuss the complicated Rank litigation in further detail then please contact Rob McCann.


About the Author

The VAT People are leading VAT and Customs Duty consultants based in the North West of England. We work with a wide range of businesses throughout the UK as well as assisting our accountancy colleagues to unravel the thorny VAT issues for their clients. We are one of the UK's largest and most comprehensive sources of VAT and Customs advice, our consultancy team having over 140 years of experience in VAT and Customs gained in either HMRC or a Big 4 accountancy practice environment.

Call us on our VAT helpline 0800 077 4604 to discuss. All initial discussions are free with no-obligation.



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Article Published/Sorted/Amended on Scopulus 2013-11-08 09:39:09 in Tax Articles

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