In HMRC v KE Entertainments Ltd [2018] CSIH 78 the Court of Session in Scotland found a bingo operator was not entitled to a refund of VAT when HMRC changed the basis for assessing VAT.
Although Bingo seems to be a simple gambling game, its VAT treatment is more complex.
The charge to play has two elements:
- the winnings element, which is not subject to VAT
- the participation fee, which is subject to VAT.
In 2007, HMRC issued Brief 7/2007 which the changed the basis of apportionment between the two elements from the game basis (considering each game separately) to the session basis (typically of two hours of several games). The consequence was to reduce the participation fee and thus the VAT payable.
The problem for the operator was that the winnings element varied depending on the number of players in a session, compared to that calculated on a game by game basis.
It claimed it was entitled to reclaim the VAT paid under the game basis minus that which would have been paid under the session basis.
The Court considered whether there had been a “decrease in consideration” as set out in Article 90 of the VAT Treaty. It found that there had not been such a decrease and so allowed HMRC’s appeal against the decision of the upper tribunal.
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