Revenue and Customs v The Rank Group

The principle of fiscal neutrality ordinarily treats apparently similar or identical supplies as being in competition. A taxpayer establishes a distortion where similar supplies receive different VAT treatment. The taxpayer need not prove actual competition between suppliers, consumer choice, or a demonstrable effect in a particular local market. The relevant competition is between supplies, assessed at a general level. The authority responsible for the differential treatment must establish any justification. For gaming machines, whether chance is provided by “the machine” is a fact-sensitive question. The relevant machine is ordinarily the machine played by the customer and containing the payment slot. A random number generator in a separate unit serving several terminals may be an external event rather than part of that machine. A coherent and consistently applied administrative practice may also engage fiscal neutrality.

HM Revenue and Customs appealed two Value Added Tax and Duties Tribunal decisions concerning Rank Group PLC. The Bingo Appeal concerned different VAT treatment for mechanised cash bingo played under sections 14 and 21 of the Gaming Act 1968. The Slots Appeal concerned whether terminals linked to random number generators were “gaming machines” for VAT purposes, and whether HMRC had treated comparable machines as exempt in practice.

The appeals raised the proper relationship between similarity, competition and fiscal neutrality, the construction of “the machine” in the statutory gaming-machine definition, and the circumstances in which administrative practice is relevant.

1. Fiscal neutrality. The Tribunal had correctly held that similar section 14 and section 21 bingo games were in competition. Similarity is assessed at a fairly high level of abstraction, by reference to the characteristics of the supplies and the needs they meet from the consumer’s perspective. The identity of the supplier is irrelevant. Competition is between supplies, not suppliers, and is assessed by reference to the activity as such rather than a particular local market. Once similar supplies are unequally treated for VAT, distortion is established without proof of actual competition, consumer influence or substantial economic effect. Any justification for the difference is for the authority imposing it to establish (paras 20–37).
2. Meaning of “machine”. The statutory reference to the machine is directed to the machine constructed for playing the game, played by the customer and containing the payment slot. The fact that equipment performs a necessary function does not make every connected component part of one machine. Whether the determining event is produced by the machine or is an external event recorded by it is a question of fact. A random number generator in a separate unit serving several terminals may therefore fall outside the definition. The Tribunal’s approach disclosed no error of law (paras 57–68).
3. Application to the Slots Appeal. The comparator games were interchangeable with the taxed games and were similarly in competition. The differing VAT treatment therefore breached fiscal neutrality. The Tribunal was also entitled to find, alternatively, that HMRC had adopted a coherent and considered administrative practice treating some comparator machines as exempt. A relevant practice must be shown by appropriate evidence and must be, at least to some degree, consistent and general. Coincidental administrative errors are insufficient. A later change of position cannot undo the earlier competitive distortion (paras 69–80).
4. Both appeals were dismissed. Costs and other applications were adjourned to a later hearing (para 81).

High Court (Chancery Division): HMRC appealed two decisions of the Value Added Tax and Duties Tribunal. Mr Justice Norris dismissed both appeals. Costs and other applications were adjourned.