HMRC Loss at an Interim Tribunal Hearing ‘Ups the Ante’ on Linneweber VAT Claims

HMRC Loss at an Interim Tribunal Hearing ‘Ups the Ante’ on Linneweber VAT Claims
There is increased pressure on HMRC to acknowledge the validity of VAT refund claims for gaming machines following a recent interim Tribunal decision.


Rank Group Ltd was successful in its appeal (VTD 20,777), after HMRC was accused of being inconsistent in the way it levied VAT on different kinds of gaming machine takings.


Rank had submitted a refund claim of up to £25 million for VAT it believes was overdeclared between 2003 and 2005 on gaming machines in its Mecca Bingo clubs and Grosvenor Casinos.

The claim was made on the basis that the different treatment of takings, depending on where the random number generator was, breached fiscal neutrality, and that the correct remedy was to treat all takings as exempt from VAT. However, when the UK changed the law in December 2005, the takings from all machines were made taxable instead.


Whilst this is only an interim decision, and will be followed by further litigation this year when more evidence is available, the ruling is likely to affect other gaming machine operators, who may also be able to claim refunds.


A large number of appeals resulting from HMRC’s refusal to pay such refund claims have been stood over behind this case.


The Tribunal was only looking at the period back to 2003, and the question of when this distortion of treatment first arose is not clear.


The Tribunal also indicated that the matter may have to be referred to the ECJ, to resolve what it referred to as ‘a tension between fiscal neutrality and legal certainty’, so anyone who secures a refund from HMRC (if HMRC agree to repay on the basis of an interim Tribunal decision) should be aware that they will probably have to repay it plus interest if HMRC subsequently win.


The refund claims were made on the back of the Linneweber ECJ case (C-450/2), where the ECJ found that Germany was wrong to treat gaming machine takings differently depending on whether the machines were in casinos or arcades. Although this case had a different fact pattern (as the machines in Linneweber were all the same type), the Tribunal’s findings in Rank Group seems to have been heavily swayed by that case.