Passion Incorporated Limited v The Commissioners for HMRC
[2024] UKFTT 122 (TC)
The Commissioners for HMRC v Hippodrome Casio Ltd
29 January 2024
[2024] UKUT 27 (TCC)
Upper Tribunal
A casino claimed a VAT refund using a new calculation method based on the space used for different activities. The tax authority argued the method was flawed because it didn't account for areas used for both taxable (e.g., restaurants) and tax-exempt (e.g., gambling) activities. A higher court agreed, ruling that the casino's method wasn't accurate enough and the standard method should be used.
Key Facts
- •HMRC appealed a First-tier Tribunal (FtT) decision allowing Hippodrome Casino Ltd's (HCL) VAT claims based on a Standard Method Override (SMO) using floorspace.
- •HCL used floorspace to apportion residual input tax for 2012/13 to 2018/19, claiming it more accurately reflected economic use than the standard turnover method.
- •HMRC argued the FtT erred by not addressing the 'dual use' of areas for both taxable (entertainment, hospitality) and non-taxable (gaming) supplies.
- •The FtT found HCL's floorspace method provided a fairer, more reasonable, and precise proxy for economic use than the standard method.
Legal Principles
Deductibility of VAT for supplies used for both taxable and non-taxable transactions is proportional to taxable use. Alternative methods are permitted if they guarantee a more precise determination than the standard turnover method.
Articles 173 & 174 of Directive 2006/112/EC and Regulation 101 of the VAT Regulations 1995; VWFS case C-153/17
A Standard Method Override (SMO) is allowed if the standard method's attribution differs substantially from the actual extent of goods/services used for taxable supplies.
Regulation 107B of the VAT Regulations 1995
When assessing economic use, consideration isn't limited to physical use; it must reflect economic reality based on observable business features.
Revenue and Customs Commissioners v London Clubs Management Ltd [2012] UKUT 365; LCM case
Appellate courts should be cautious before overturning a first-instance tribunal's factual findings unless plainly wrong.
AH (Sudan) v SSHD [2007] UKHL 49; Fage UK Ltd v Chobani UK Ltd [2014] EWCA Civ 5; Volpi v Volpi [2022] EWCA Civ 464
A failure to give reasons for an essential conclusion is a freestanding ground of appeal.
Awards Drinks Ltd v Revenue and Customs Commissioners [2020] STC 2336
Outcomes
The Upper Tribunal (UT) set aside the FtT's decision.
The FtT failed to address HMRC's 'dual use' argument regarding the economic use of hospitality and entertainment areas for both taxable and non-taxable supplies and failed to provide reasons for rejecting this central contention.
HCL's appeals against HMRC's refusal of the SMO were dismissed.
The UT found that the floorspace SMO did not provide a more precise determination of the deductible proportion of input VAT than the standard turnover method, due to significant dual use and flaws in the SMO's assumptions about unallocated space.