Revenue and Customs (HMRC) v London Clubs Management Ltd

This appeal concerned the correct construction of section 11(10)(a) of the Finance Act 1997: whether non-negotiable promotional gaming tokens and free bet vouchers (“Non-Negs”) staked by a player have a "value, in money or money's worth" for the purposes of calculating banker’s profits and thus gaming duty. The Court of Appeal dismissed HMRC’s appeal and held that, in the real-world commercial context of section 11, Non-Negs do not represent receipts or deposits and therefore do not have objective monetary value when staked; they are promotional expenditure by the casino and, absent evidence of assignability, cannot be ascribed a value in money or money’s worth for s 11(10)(a). The court also agreed with the Upper Tribunal’s view (expressed obiter) that Non-Negs treated as prizes fall within section 20(4) of the Betting and Gaming Duties Act 1981 and so have no value for the relevant prize valuation in s 11(10)(b). The decision relied on Lipkin Gorman and the reasoning in Aspinalls but interpreted those authorities as compatible with an objective economic assessment that yields nil value for Non-Negs.

This appeal arises from a dispute between HMRC and London Clubs Management Limited about the tax treatment of promotional, non-negotiable gaming tokens and free bet vouchers (collectively “Non-Negs”). LCM issued Non-Negs to selected customers to induce play; such tokens function in play like cash chips but cannot be encashed, used to buy goods or services, or (on the evidence) assigned to third parties for value. The First-tier Tribunal held that the face value of a chip is the relevant value for section 11(10)(a) FA 1997 and dismissed LCM’s claim. The Upper Tribunal allowed LCM’s appeal, holding that the value for s 11(10)(a) is the money or money’s worth actually put at risk by the player and that Non-Negs therefore have nil value when staked. HMRC obtained permission to appeal to the Court of Appeal.

The issues before the Court of Appeal were (i) the statutory construction of s 11(10)(a) FA 1997: whether the stakes staked are to be valued by reference to the face value of tokens used in play or by reference to any objective money/money’s-worth actually put at risk by the player; and (ii) whether section 20(3)–(4) of the Betting and Gaming Duties Act 1981 requires Non-Negs awarded as prizes to be valued at face value or treated as having no value.

The Court concluded (i) that s 11 must be construed in its real-world context of gross gaming yield and banker’s profits and that a Non-Neg is, in substance, promotional expenditure by the casino rather than a receipt; accordingly Non-Negs are not properly to be treated as stakes having monetary value under s 11(10)(a); and (ii) that, consistently, Non-Negs awarded as prizes fall within s 20(4) BGDA 1981 and are to be treated as having no value for the prize valuation in s 11(10)(b). The court rejected HMRC’s diamond-necklace hypotheticals as inapposite, accepted the Upper Tribunal’s economic-substance approach, and held that Aspinalls and Lipkin Gorman are compatible with the conclusion that Non-Negs have nil value unless evidence shows assignability or redeemability for money or money’s worth. The Court dismissed HMRC’s appeal. The judgment noted the practical tax implications and that the UT had expressed its view on s 20(3)–(4) as obiter.

Appeal dismissed. The Court held that Non-Neg chips and free bet vouchers do not have a value "in money or money's worth" for the purposes of section 11(10)(a) Finance Act 1997 because they are promotional items constituting the casino’s expenditure rather than receipts or deposits; objectively assessed, and absent evidence of redeemability or assignability for money or money’s worth, their value when staked is nil. The court also agreed with the Upper Tribunal’s view that, for prize valuation, Non-Negs fall within section 20(4) Betting and Gaming Duties Act 1981 and so have no value for section 11(10)(b).

Appeal from the Upper Tribunal (Tax and Chancery Chamber) Henderson J & Judge Berner [2016] UKUT 259 (TCC), which allowed London Clubs Management Limited’s appeal from the First-tier Tribunal (Judge Sinfield) [2014] UKFTT 1060 (TC). Permission to appeal to the Court of Appeal was granted by Patten LJ on 23 November 2016.