Revenue and Customs (HMRC) v London Clubs Management Ltd

For gaming duty, the value of stakes and prizes must be assessed in their real-world commercial context. A free, non-negotiable chip or voucher supplied by a casino is not part of the casino’s receipts or banker’s profits merely because it has a face value used to calculate winnings.

Where such a token does not represent money paid or deposited, cannot be redeemed for money or monetary goods or services, and has no proven transferable value, it has no value in money or money’s worth under section 11 of the Finance Act 1997. The same conclusion applies when the token is retained or returned as a prize under the adapted valuation provisions of the Betting and Gaming Duties Act 1981.

LCM offered selected casino customers free bet vouchers and non-negotiable chips, collectively called Non-Negs. They could be used to bet at gaming tables and, if replayable, were returned after a winning bet. Unlike ordinary cash chips, they could not be encashed or used to buy goods or services.

The First-tier Tribunal held that their face value formed part of the stakes staked. The Upper Tribunal allowed LCM’s appeal and held that their value was nil: [2016] UKUT 259 (TCC). HMRC appealed from that decision, which had reversed the First-tier Tribunal’s decision: [2014] UKFTT 1060 (TC).

The central issue was whether Non-Negs had a value in money or money’s worth as stakes, and as prizes, for section 11 of the Finance Act 1997.

Disposition

1. The court unanimously dismissed HMRC’s appeal. Lady Justice Gloster gave the judgment, with which Lord Justice Leggatt and Lord Justice Flaux agreed.

2. The calculation of gross gaming yield and banker’s profits under section 11 of the Finance Act 1997 must be construed in its real-world commercial context. It concerns actual gaming receipts and profits, rather than artificial or notional values assigned to a casino’s promotional expenditure. A Non-Neg supplied free by the casino was not a receipt contributing to gross gaming yield. It was instead an item of the casino’s expenditure and created only a contingent liability to pay winnings if the bet succeeded.

3. Accordingly, a Non-Neg was not to be included as a stake in the statutory profit calculation. In any event, if it were characterised as a stake, it had no objective value in money or money’s worth. It did not represent money paid or deposited with the casino, could not be redeemed for money or for goods or services of monetary value, and there was no evidence that it could be assigned for money or money’s worth.

4. Aspinalls concerned ordinary cash chips, bought for their face value and redeemable for the same amount. Its reasoning did not require a face-value assessment for Non-Negs. The objective assessment of value required a real-world economic assessment, not a subjective assessment from either the player’s or casino’s perspective. The reasoning in Lipkin Gorman likewise supported the distinction between chips standing for money and a free Non-Neg.

5. The court also upheld the Upper Tribunal’s conclusion on prizes. Under the adapted section 20 of the Betting and Gaming Duties Act 1981, a retained Non-Neg was not a voucher used in place of a monetary payment for a benefit. Its use was restricted to placing a free bet and its value was significantly below its face value. It therefore had nil value as a prize for section 11(10)(b) of the Finance Act 1997.

• Court of Appeal (Civil Division): HMRC’s appeal was dismissed: [2018] EWCA Civ 2210.

• Upper Tribunal (Tax and Chancery Chamber): Allowed LCM’s appeal, holding that Non-Negs had nil value as stakes and expressing the same view as to prizes: [2016] UKUT 259 (TCC).

• First-tier Tribunal: Dismissed LCM’s appeal and held that Non-Negs had their face value for the relevant gaming-duty calculation: [2014] UKFTT 1060 (TC).