VAT – Spot the Ball – Has HMRC’s luck run out?

The Court of Appeal has recently released its judgment in the case of IFX Investment Company and Ors, ruling in the taxpayers’ favour. The Court held that ‘Spot the Ball’ (STB) competitions are to be treated as exempt from VAT under the gaming exemption.

The case dealt with whether the previous decision of the First-tier Tribunal was wrong to hold that the appellants’ STB competitions were exempt under the gaming exemption as per Value Added Tax Act 1994, Schedule 9 Group 4.

In order to fall within the gaming exemption, STB must be a ‘game of chance’ within the meaning of the Gaming Act 1968. The main dispute in these proceedings was over the word ‘game’ and the words ‘of chance’.

To fall within the gaming exemption, STB had to be a ‘game of chance’ within the meaning of the Gaming Act 1968. The First-tier Tribunal had rejected the argument that there had to be an ‘inter-player interaction rule’ (a rule that a competitor has both to make a move and also to respond to a competitor’s move or to a change of circumstance resulting from his move) and also held that STB was a ‘game of chance’.

The Upper Tribunal decided against the First-tier Tribunal decision ruling that inter-player interaction was required, and made its own assessment that STB was not a ‘game’. The Upper Tribunal considered that it did not therefore need to consider whether STB was a game ‘of chance’.

The Court of Appeal agreed with the taxpayer that there was no hard and fast rule or presumption about inter-player participation in a ‘game’ for the purposes of the Gaming Act 1968, and further that the First-tier Tribunal made no error of law in holding that STB was a ‘game of chance’. The resultant decision means the First-tier Tribunal’s decision has been restored.

HMRC has until 13th May to apply to the Court of Appeal for permission to appeal to the Supreme Court.

At stake is a £97m VAT repayment claim on the STB game which is worth more than half of Sportech’s current market cap of £156.7m.

Taxpayers running competitions which may fall to be treated as a ‘game of chance’ may wish to consider the impact of the judgment and I would be happy to discuss these matters in further detail so please feel free to get in touch.