The Supreme Court dismissed HMRC’s appeal about the gaming-duty treatment of free non-negotiable chips and bet vouchers issued by a casino. It held that these promotional items are not stakes staked with a value in money or money’s worth when a banker’s profits are calculated under the Finance Act 1997. Their face value therefore does not form part of the gross gaming yield.
The promotional chips and vouchers
London Clubs Management Ltd operates casinos at which games such as blackjack, punto banco and American roulette are played. From 2008 it gave selected gamblers, free of charge, non-negotiable chips and several kinds of free-bet voucher, referred to collectively as Non-Negs, in order to encourage them to gamble. Ordinary cash chips represent money deposited or won; they may be replayed, used for goods or services, or encashed. Non-Negs may be used only to place bets. If the gambler wins, the winnings are paid in cash chips and the Non-Neg is returned; if the gambler loses, the Non-Neg is placed in the table’s drop box. Non-Negs cannot be encashed or exchanged for goods or services.
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LCM initially included the face value of Non-Negs retained in its drop boxes in its calculation of banker’s profits. After reviewing that approach, it claimed that it had overpaid gaming duty and, in October 2012, sought repayment of £1,973,376.97 for the period from 1 October 2008 to 30 September 2012. HMRC rejected the claim. The First-tier Tribunal dismissed LCM’s appeal. The Upper Tribunal allowed it, and the Court of Appeal dismissed HMRC’s further appeal. HMRC then appealed to the Supreme Court.
How gaming duty is calculated
Gaming duty is charged under the Finance Act 1997 on premises where dutiable gaming takes place. The duty is calculated by reference to the gross gaming yield, which includes the banker’s profits where the provider of the premises is the banker. Under section 11(10), those profits are the amount by which the value, in money or money’s worth, of the stakes staked with the banker exceeds the value of the prizes provided by the banker. Section 11(10A) applies specified provisions of section 20 of the Betting and Gaming Duties Act 1981 to the valuation of prizes.
The majority decision
Lord Kitchin, with whom Lord Carnwath and Lady Black agreed, held that the calculation looks to real-world economic value from the banker’s perspective. Cash chips stand for money deposited with the casino. When they are used to bet, that money is appropriated to the bet. Non-Negs represent no such money. If a Non-Neg is lost, no right to money passes to the casino. From the casino’s point of view, the gambler has been allowed a free bet. A Non-Neg therefore contributes nothing to the banker’s profits. It is not a stake staked, and it has no value in money or money’s worth, within section 11(10)(a).
The majority rejected HMRC’s contention that a Non-Neg takes the face value given to it in the game. An agreed playing value, illustrated by HMRC’s example of a diamond necklace treated as worth £10,000, may be evidence of real value but is not conclusive. If the item later proves worthless, it adds nothing to the banker’s profits; if it is worth more, that greater real value is what counts.
The majority also considered Non-Negs returned to winning gamblers as prizes, although a decision on that point was not required to dispose of the appeal. Such a Non-Neg does not satisfy section 20(3)(a) of the 1981 Act, because it is not used in place of money as payment for benefits. Using a chip or Non-Neg is the placing of a stake in a game of chance, not a purchase. Retained Non-Negs therefore have no value for section 11(10)(b). The result is coherent: Non-Negs neither increase the banker’s profits when lost nor reduce them when returned.
The other judgments
Lady Arden agreed that the appeal should be dismissed, but on different reasoning. She treated “value” as objective open-market value rather than value judged only from the banker’s perspective, and she considered a Non-Neg to be a stake. There was, however, no evidence that these Non-Negs had any market value, so none fell to be included. She left open whether section 11(10A) requires section 20 to be modified so that Non-Negs are valued consistently as stakes and as prizes.
Lord Sales agreed with Lord Kitchin on the stakes issues, which were enough to decide the appeal. He disagreed about prizes. On his reading, a Non-Neg awarded as a prize satisfies section 20(3) and is not caught by section 20(4), so it should be brought into account at its full face value as a cost to the banker.
Verdict: The Supreme Court unanimously dismissed HMRC’s appeal. The promotional chips and vouchers retained by these casinos did not add their face value to taxable stakes. The justices gave different reasons and differed over the treatment of a chip returned as a prize, which was unnecessary to decide the appeal.
Source: Commissioners for Her Majesty’s Revenue and Customs v London Clubs Management Ltd [2020] UKSC 49
