In a bizarre Upper Tier Appeal, HMRC raised eight (yes, eight) Grounds of Appeal, or reasons why the taxpayer should not have followed HMRC’s own guidance:
- Although we have advised you that there has been a change in the value of a supply (participation fee), the value of the supply has not changed.
- Although we published a Brief directing you to follow a particular calculation, the guidance in that Brief was not relevant.
- Although we directed that the value of the supply had changed by means of our Brief, you cannot change the value of a supply retrospectively.
- Although we told you that your Return was wrong, you had not made a mistake, because you thought you had not made a mistake.
- Although there was a ‘decrease in consideration,’ there was no overdeclaration of output tax. And, yes we know that VAT is calculated based on the amount of the consideration.
- Although you created a journal to reflect the change in consideration, this entry is irrelevant.
- You can ignore Article 90 of the PVD because bingo is different to everything else, except perhaps foreign exchange.
- Finally, because of the previous 7 Grounds, you cannot issue a Credit Note to correct the VAT we told you was overdeclared.
K E Entertainments Ltd was the lead case in relation to cash bingo. HMRC had issued Brief 07/2007, directing operators to a particular method of apportioning income between participation fees (taxable) and the stake (outside the scope of VAT). The Brief also directed a retrospective adjustment. The Brief was published on 1 February 2007.
Paras 3-9 of the Upper Tier decision explain how the calculations work. The Tribunal commented on this point (para 11) that the stake was higher under the session basis, therefore the output tax due would be lower than under the game-by-game basis. Thus, operators would make claims for overdeclared VAT. KE had claimed around £460,000. The total value of claims made was around £40m.
KE made a claim for overdeclared output tax because HMRC required them to do so! HMRC challenged this. HMRC had already lost the FTT case in Carlton Clubs Ltd, on identical grounds, then lost at First Tier in KE. It is difficult to conceive why they pursued this Appeal!
The Upper Tier decision is here
The FTT decision is here.