Rank Set for £80M Tax Rebate
The UK’s Rank Group is set to receive an £80 million tax refund over VAT paid on slot machine income. The news follows a decision from HM Revenue and Customs not to appeal against an earlier tribunal judgement.
The UK is home to 35,000 fixed-odds betting terminals. ©Bru-nO/Pixabay
Sixty-Day Extension
Rank Group, the betting and gaming operator behind Grosvenor Casino and Mecca Bingo, has updated shareholders on its VAT refund claim. It says that HMRC will not appeal the decision handed down by the First-tier Tribunal on June 30th, 2021, regarding VAT paid on income generated by slot machines from April 2006 to January 2013.
A press release issued by the Rank Group goes into further detail on the case, adding that the First-tier Tribunal has granted a sixty-day extension to enable the tax authority and Rank to agree the exact quantity of the claim.
The operator is guaranteed to receive a tax rebate, as HMRC is no longer able to challenge its appeal previously rejected by an Upper Tribunal review. Rank expects that it will receive in the region of £80 million from the tax refund, although a final decision on the actual sum has yet to be reached.
Rank is just one of thousands of businesses that could be in line for a windfall of tax refunds. In addition to gambling firms, pubs and arcades that offer their customers access to gambling machines could also be eligible to receive rebates. There are thought to be around 35,000 fixed-odds betting terminals in the UK, and 190,000 slot machines of all kinds.
Before 2005, gambling machines were subject to gambling duty rather than VAT. It was after the 2005 Gambling Act was introduced that this changed, and the VAT exemption for FOBTs was removed. In 2013, VAT was replaced by machine games duty at 20%. In March 2015 that was then raised to 25% of gross revenue.
For the last decade operators have argued that the VAT paid on FOBTs was unfair and should be repaid. A ruling has now agreed that the government unfairly charged businesses VAT on some of their gambling machines, including fruit machines, one-armed bandits and coin-pushers.
Could Cost HMRC £1B
Between 2005 and 2013, gambling operators should not have paid VAT on a range of slot machines, because they were found to be similar to other gambling products, like casino roulette wheels and online slots, that were exempt from VAT.
The original dispute was led by plaintiffs Rank Group and the Done Brothers from Betfred. Both parties brought separate challenges against HMRC for applying VAT-specific charges to FOBTs, when these charges had not been applied to other gaming products. In April 2020, Betfred won its legal challenge, and now Rank has followed suit.
The judge ruled in favor of Rank, and its challenge was upheld by the FTT. In Justice Mann’s verdict he sided with the gambling operators, upholding the previous judgements against HMRC. The judge found that the government was at fault for failing to provide a clear distinction on games defined as FOBTs.
As a result of the judge’s decision, all gambling firms affected during that time period will be able to appeal for their own tax rebates. It is thought that the ruling could cost HMRC upwards of £1 billion. William Hill and Entain’s Ladbrokes Coral division have said that they would examine their eligibility for tax rebates, amounting to more than £350 million.
Betfred has already benefitted from a HMRC credit return of £99 million. That helped it to lift its 2020 profits, after it faced shortfalls from the closure of its betting shops in 2020. Whilst its group wagers fell from £10 billion to £6.5 billion, its corporate revenues fell 16% to £524 million. However, the huge credit return boosted its operating profits to £104 million, 40% higher than 2019’s takings of £75 million.
Buffering Pandemic Losses
The refunds will be welcome news for gambling firms affected by the COVID-19 pandemic. While online gaming saw a boost in popularity during the lockdown and furlough periods, other businesses such as high street betting shops and casinos took a big hit to their earnings.
Rank recently published its financial results for 2020/21, revealing an operating loss of £93 million. It attributed that loss to the closure of its Grosvenor Casinos and Mecca Bingo halls during the lockdowns. As such, it expects to bounce back in next year’s financial results. Announcing the results, Rank Chief Executive John O’Reilly commented:
“Our venues have been performing ahead of our expectations following the easing of restrictions on the UK hospitality sector on 17 May and we anticipate further growth as travel restrictions eventually ease and tourism returns, particularly to London.”
O’Reilly went on to thank the company’s staff for their commitment and character during the pandemic. Despite the difficult times, Rank colleagues showed strong support for each other, local communities and front-line workers. Acknowledging that COVID-19 still poses some uncertainty for the business, he expressed confidence that Rank will be able to benefit the hospitality sector as it emerges from the pandemic.
While HMRC will take a hit in having to pay out these rebates, the gambling industry is still highly lucrative for the Treasury. In the last tax year, betting firms paid £2.8 billion in tax. Gambling Commission figures have also shown the UK’s gambling industry to be worth approximately £14.3 billion a year.
For Rank, the last eighteen months have been difficult but the future looks bright. It is still in the midst of a period of significant change though. The government is currently reviewing its 2005 Gambling Act and legislation is expected to be overhauled soon. Rank will also have to search for a new Chief Financial Officer, as it has announced the departure of Bill Floydd.
