Commissioners for Her Majesty’s Revenue and Customs v London Clubs Management Ltd

For gaming duty, the value of stakes staked is their actual, real-world value to the banker. The calculation concerns the economic contribution made by gaming to the banker’s profits, rather than the value attributed to an item under the rules of a game.

A promotional chip or voucher which permits a free bet, but represents no money and cannot be exchanged for money, goods or services, is neither a stake staked nor money or money’s worth under section 11(10)(a) of the Finance Act 1997. Its possible value to the gambler, including any value arising from assignability, does not alter its value to the banker.

London Clubs Management Ltd supplied selected gamblers with free non-negotiable chips and vouchers. They could be used to bet at its casinos but could not be encashed or exchanged for goods or services. The company sought repayment of gaming duty which it said it had overpaid after including the face value of lost promotional chips and vouchers in its banker’s profits.

The First-tier Tribunal dismissed the company’s appeal. The Upper Tribunal allowed its further appeal: [2016] UKUT 0259 (TCC). The Court of Appeal dismissed HMRC’s appeal: [2018] EWCA Civ 2210; [2019] 1 WLR 1.

The Supreme Court considered whether the promotional instruments were stakes under section 11(10)(a) of the Finance Act 1997, whether they had value in money or money’s worth, and how they should be valued when returned as prizes.

1. The appeal was dismissed unanimously. Lord Kitchin, with whom Lord Carnwath and Lady Black agreed, held that the calculation of banker’s profits under section 11(10) of the Finance Act 1997 must be made from the banker’s perspective. “Money or money’s worth” directs attention to the stake’s actual, real-world value and the financial contribution which it makes to the banker’s profits from gaming. The value assigned under the rules of a game is not determinative.

2. Cash chips represent money deposited, won or otherwise belonging to the gambler. When such a chip is staked, the represented money is appropriated to the bet. A non-negotiable promotional chip or voucher is different. It represents no money to which the gambler is entitled and cannot be encashed or exchanged for goods or services.

3. A promotional instrument may have real value to the gambler because it provides an opportunity to win without risking the gambler’s own money. Nevertheless, when it is lost, no money or right to money passes to the casino. From the banker’s perspective it is a free bet and contributes nothing to banker’s profits. Its assignability and possible exchange value to gamblers are irrelevant. It is therefore neither a “stake staked” nor of value in “money or money’s worth” under section 11(10)(a).

4. The actual objective value of a non-cash stake governs. A value agreed for gaming purposes may be powerful evidence, but it does not bind HMRC or displace the item’s true value.

5. On the further, non-dispositive prize issue, the majority considered that a returned promotional instrument did not satisfy section 20(3)(a) of the Betting and Gaming Duties Act 1981. Using it to place a bet was not using it instead of money as payment for a benefit. The scheme therefore did not permit a casino to deduct repeated face-value amounts merely by returning the same instrument after successive wins.

6. Lady Arden agreed that the appeal should be dismissed, but considered value to mean objective open-market value rather than value solely to the banker. HMRC had failed to prove any such value. Lord Sales agreed with the majority on the dispositive issues, but, with Lady Arden, considered that a returned instrument could have its face value as a prize under section 20(3). That minority conclusion did not affect the order.

1. United Kingdom Supreme Court: HMRC’s appeal was dismissed unanimously: [2020] UKSC 49.

2. Court of Appeal: HMRC’s appeal was dismissed: [2018] EWCA Civ 2210; [2019] 1 WLR 1.

3. Upper Tribunal (Tax and Chancery Chamber): The company’s appeal was allowed because no value in money or money’s worth had been established: [2016] UKUT 0259 (TCC).

4. First-tier Tribunal: The company’s appeal against HMRC’s refusal of repayment was dismissed: [2014] UKFTT 1060 (TC).