Court of Appeal upholds HMRC’s appeal in the Rank case

30 Oct 2013

The Court of Appeal today allowed HM Revenue and Customs’ appeal in ongoing litigation about whether UK law on the VAT treatment of gaming machines was in breach of the principle of fiscal neutrality.

The litigation concerns claims by Rank, and many other operators in the gaming industry, amounting in total to many hundreds of millions of pounds, for repayment of VAT paid on takings from gaming machines, operated by them under Part III of the Gaming Act 1968 and subject to VAT under the provisions of the VAT Act 1994 as it then stood.  Rank argues that the taxation of its machines breached the principle of fiscal neutrality as, according to Rank, certain other similar machines were not subject to VAT.

Following a judgment of the European Court of Justice in 2011, the issue before the Court of Appeal was whether Rank was right to say that machines known by the industry as “section 16/21 machines” were not subject to VAT.  The Court of Appeal held that they were subject to VAT.  The key question was whether, in the disputed machines, the element of chance in the game was provided “by means of the machine”: the Court agreed with HMRC that where the element of chance was determined by a random number generator linked by a wire to the terminals on which the punter played, the element of chance was determined “by means of the machine” .  Since the disputed machines were in law taxable, it followed that there was no difference in tax treatment between them and Rank’s taxed machines, and hence no breach of the principle of fiscal neutrality in respect of these machines.

Although the judgment is an important victory for HMRC in this long-running litigation, Rank’s claim based on the exemption from VAT, at the relevant time, of fixed-odds betting terminals (FOBTs) has still to be considered by the First Tier Tribunal.  A judgment of the First Tier Tribunal in 2009 that upheld that part of Rank’s claim was overturned by the Upper Tribunal last year and sent back to the First Tier Tribunal for redetermination: the issue in that case will be whether, as Rank claims but HMRC deny, FOBTs were similar to Rank’s taxed gaming machines.

George Peretz and Laura Elizabeth John acted for HMRC: Paul Lasok QC and Valentina Sloane acted for Rank.

Click here to read the full HMRC v The Rank Group plc judgment.

Frank Mitchell wrote the following HMRC v Rank Group Plc case note.