Sports Books and Casinos Win the VAT Legal Battle with HMRC

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Sports betting operators in the UK are expected to reclaim up to £1 billion, after the legal battle over the inappropriately applied tax to fixed-odds betting terminals (FOBTs) is over. The Upper Tribunal Tax Chamber came up with a ruling last month supporting the First-Tier Tribunal stance that gambling companies have been charged VAT on the machines incorrectly, and HMRC ultimately decided to clear the way for operators to claim by not pursuing further appeals.

Principle of Fiscal Neutrality

The long-running case against HMRC was filed by Betfred and Rank, claiming that games provided on an FOBT are being charged with VAT while the same games delivered through different platforms, such as casino roulette wheels, are exempt from the tax, representing a breach of the principle of fiscal neutrality.

The original plaintiffs, Betfred and Rank Group, are expected to claim VAT amounts they paid from 2002 to 2005 for the latter, and 2005 to 2013 for the latter. And most certainly many other operators of FOBT terminals for the period would file their claims, with the total VAT refund expected to reach £1 billion.

Rank Group brought the FOBT VAT case to the Court of Justice of the European Union in 2011, having the court ruling in its favour, a decision that ultimately lead to VAT on terminals being replaced by another form of tax, Machine Games Duty in 2013.

William Hill Expects Material Cash Recovery

William Hill already issued a statement to the stock market, stating the company expects the cash recovery to be material, but no certainty regarding the precise quantum, with the Board considering a number of scenarios that imply a potential cash recovery of between £125 million and £150 million. The company will now engage with HMRC to ascertain the amount and the timing of the refund.

GVC Holdings Claim of up to £200M

Another sports betting operator, GVC Holdings, has not responded to the decision of the HMRC not to pursue a further appeal. The gaming company that has just completed the migration of its Ladbrokes business to its proprietary technology platform, previously said it could claim up to £200 million in case the ruling was in favour of the industry, due to VAT applied to its machines in the Ladbrokes betting shops for the period October 2002January 2013.

Last Machine Windfall

Most sports betting operators will welcome the cash recovery, having been materially impacted by the sports suspension around the globe and the lack of product offering in their portfolios resulting into significantly lower revenues. And besides, this will be like the last windfall from the FOBTs, as they were crippled by the limit stake imposed on them, being considered to lead to gambling addiction.

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