VAT Tribunal – Partial Exemption case
A recent VAT tribunal case examined whether or not a taxpayer could adopt a new floor based partial exemption method for determining the input tax it could recover. Despite HMRC twice having rejected the taxpayer’s claim the tribunal found in favour of the taxpayer.
The case in question concerned a casino operator which operates 11 casinos across the UK. The casino operator wished to use a floor-area based partial exemption method by reference to the use of defined areas within the casino. This proposed method was rejected by HMRC in October 2007 and again in August 2008 following a request for reconsideration.
The issue had arisen at least partly as a function of the Gambling Act 2005 which was initially expected to allow a far greater number of slot machines per casino. The taxpayer had taken leases on a number of large premises with the intention of a significant proportion of the floor space being used to site slot machines. These casinos typically had a floor area exceeding 50,000 square foot (substantially more than traditional casinos). Ultimately the Gambling Act imposed a limit of just 20 slot machines per casino. The casino operator began to use a significant proportion of this extra space to target customers interested in visiting the casinos for food (including fine dining in a number of venues) and general entertainment and to improve the general level of additional services available to all casino visitors.
All this contributed to the taxpayer’s assertion that a floor-based partial exemption method was fair and reasonable and more accurately allowed for a proportion of mostly property related residual costs to be recoverable as relating to taxable supplies.
After visiting one of the Casinos and considering the alternative partial exemption methods that could be adopted the tribunal ultimately dismissed HMRC’s arguments. The tribunal held that the casino operator’s proposed partial exemption method was valid and that it was more fair and reasonable than the existing (turnover based) method.