Tribunal Rules on Recovery of Residual Input Tax in HMRC v Hippodrome Casino Ltd Case

Citation: [2024] UKUT 27 (TCC)
Judgment on


The Upper Tribunal (Tax and Chancery Chamber) has released a decisively detailed judgment concerning the case of The Commissioners for HMRC v Hippodrome Casino Ltd [2024] UKUT 27 (TCC). This case delves into the recovery of residual input tax, highlighted by a dispute regarding the appropriate method for VAT apportionment on overhead expenditures associated with taxable gaming and non-taxable hospitality and entertainment activities conducted by Hippodrome Casino Limited (“HCL”). This article meticulously scrutinizes the legal principles and conclusions reached by the Tribunal, shedding light on the nuanced considerations of the VAT Regulations and overarching legal doctrines at play.

Key Facts

HCL operates a multifaceted casino business, entwining gaming with hospitality and entertainment services. The crux of the case hinged on whether HCL’s use of a Standard Method Override (SMO), focusing on floorspace for apportioning residual input tax, could supplant the conventional standard turnover-based method prescribed by Regulation 101 of the VAT Regulations 1995. HCL argued that its SMO provided a more accurate reflection of the economic use of its residual expenditure. The First-tier Tribunal (FtT) previously ruled in favor of HCL. However, HMRC challenged this ruling, contending that the FtT failed to adequately address the dual use of the facilities by HCL for taxable supplies and exempt gaming, leading to what HMRC perceived as a fundamental flaw in the proposed SMO.

Central to this case is the interpretation and application of various legal principles and statutory provisions:

  1. Standard Method vs. SMO (Regulations 101 and 107B of the VAT Regulations 1995): The default standard turnover-based method commensurates input tax deductions with a business’s taxable turnover. SMO is employed when it guarantees a more accurate measure of residual input tax relevant to the taxable turnover than the standard method.

  2. Dual Use of Business Facilities: The concept of ‘dual use’ pertains to a situation where a facility is used for both taxable and exempt activities, raising complexities in attributing input tax accurately according to the economic use.

  3. The Deductibility of Input Tax in Mixed Use (Articles 173-175 of Directive 2006/112/EC): The provisions detail how VAT deductibility applies to supplies used for both taxable and non-taxable transactions.

  4. Partial Exemption Special Method (PESM) and SMO: PESM and SMO cater to specific business circumstances that require departure from the standard method to ensure accuracy in input tax deduction.

  5. Business Entertainment (Article 5(1) of the Input Tax Order 1992): Expenditure on business entertainment is excluded from credit under VAT, impacting the calculation of recoverable input tax.

The Tribunal’s analysis also invoked case law interpretations surrounding economic reality and use of business amenities such as in cases like Lok’nStore and London Clubs Management Ltd.


The Tribunal extensively analyzed the evidence at hand, categorically identifying substantial dual use in the facilities managed by HCL. Consequently, it overturned the previous FtT decision, finding that the proposed floorspace SMO did not put forward a more precise measurement of economic use, given that it failed to account for the dual use of allocated areas. Therefore, the Tribunal concurred with HMRC’s argument that the SMO was fundamentally flawed, culminating in the dismissal of HCL’s appeals regarding the use of the SMO.


In conclusion, the Upper Tribunal decisively favored HMRC’s reasoning, emphasizing the salience of recognizing economic realities within VAT apportionment methods. The Tribunal’s cogent articulation of the legal principles reiterates the primacy of an SMO guaranteeing a more precise determination of input tax use than the standard turnover method. This judgment elucidates that a nuanced appreciation of the actual business operations and their impact on VAT liabilities is critical, serving as an instructive precedent for complex VAT cases where the standard method faces contention.

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