HomeInsightsSupreme Court dismisses HMRC appeal and finds that “Non-Negs” are neither “stakes staked” nor have any value in money or money’s worth for the purposes of calculating “banker’s profits”


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Gaming duty is an excise duty charged in accordance with the Finance Act 1997 on any premises where dutiable gaming takes place. “Non-negotiable gaming chips” and “free bet vouchers” (Non-Negs) are promotional tools provided free of charge by some casino operators to selected gamblers to encourage them to gamble in their casinos. Non-Negs may typically only be used to place bets at the gaming tables for their face value and cannot be used to buy goods or services, nor encashed.

From October 2008 until September 2012, London Clubs Management (LCM) included the face value of all the Non-Negs played by gamblers and retained by its casinos in the calculation of its “banker’s profits” for the purpose of computing its liability for gaming duty under ss 11(8)(b) and 11(10) of the 1997 Act. It subsequently considered that this approach was incorrect and that it had overpaid gaming duty by over £1.97 million. Her Majesty’s Revenue and Customs rejected LCM’s claim for repayment of the alleged overpayment and LCM appealed that decision.

The First-tier Tribunal dismissed LCM’s appeal. The Upper Tribunal allowed LCM’s appeal. The Court of Appeal dismissed HMRC’s further appeal. HMRC appealed to the Supreme Court.

“Banker’s profits” are defined by s 11(10) as “the value, in money or money’s worth, of the stakes staked with the banker in any such gaming” (s 11(10)(a)) less “the value of the prizes provided by the banker to those taking part in such gaming otherwise than on behalf of a provider of the premises” (s 11(10)(b)). The valuation of prizes is governed by s 11(10A), which incorporates by reference, “with any necessary modifications”, certain provisions of the Betting and Gaming Duties Act 1981.

The Supreme Court unanimously dismissed the appeal. Lord Kitchin gave the leading judgment, with which Lord Carnwath and Lady Black agreed. Lady Arden gave a separate judgment, agreeing that the appeal should be dismissed, but for materially different reasons. Lord Sales also gave a separate judgment agreeing with the majority on the decisive issues in the appeal, but reaching a different conclusion on a related issue.

Lord Kitchin held that Non-Negs are neither “stakes staked”, nor have any value in money or money’s worth within the meaning of s 11(10)(a). Lord Kitchin said that the assessment of the gross gaming yield from any premises requires a focus on the activity of gaming and not the provision of other goods or services. Further, the assessment required by s 11(10) has to be carried out from the banker’s perspective, as it is the banker’s profits that have to be brought into account in calculating the gross gaming yield. In addition, the reference to “money or money’s worth” in s 11(10)(a) emphasises that it is the real world value of the stakes in the hands of the banker that matters.

A gambler who plays with cash chips in a casino is not staking the chips as such, but the money those chips represents, which the gambler has deposited with the casino. That is not the case when a gambler places a bet using a Non-Neg, which essentially amounts to a free bet. Therefore, a Non-Neg holds no real world value to the casino when a gambler loses it in a bet, save that it eliminates the chance that the casino might have to pay out the winnings corresponding to that bet. However, that does not impart a “value, in money or money’s worth” to the Non-Neg, nor does it mean that it is a “stake staked” within the meaning of s 11(10)(a).

Lady Arden adopted different reasoning for dismissing the appeal. She held that the “value” of a stake for the purposes of s 11(10)(a) is what a person would pay for it on the open market. The objective valuation of the stake means that it can be taken into account at an appropriate value if it has generated gaming activity, which is what gaming duty is charged upon. A Non-Neg is a stake for the purposes of assessing the banker’s profits under s 11(10)(a). However, the appeal failed on the facts, as no evidence was adduced to support any objective valuation.

The Supreme Court also considered the related issue of what value, if any, should be given to Non-Negs for the purposes of s 11(10)(b). Lord Kitchin said that, as with s 11(10)(a), it is the real world cost to the banker of providing the prizes that has to be brought into account for the purposes of assessing the value of the prizes provided by the banker, subject to the relevant provisions of the 1981 Act, under which the cost to the banker of awarding a voucher as a prize is taken to be its face value if, among other things, it can be used in place of money as whole or partial payment for benefits of a specified kind obtained from a specified person. Non-Negs do not satisfy this condition and should therefore be treated as having no value for the purposes of s 11(10)(b). This is confirmed by the consideration that the result is a coherent scheme for the treatment of Non-Negs, whether used by gamblers to place bets or when returned to gamblers as prizes.

Lord Sales reached a different conclusion from the majority in this regard. When a Non-Neg is awarded as a prize, it represents a real cost to the banker, which ought to be brought into account. A Non-Neg given as a prize satisfies the relevant conditions under the 1981 Act, such that it should normally be treated as having its face value for the purposes of s 11(10)(b) of the 1997 Act. Lady Arden agreed with Lord Sales’s conclusion in this regard. (Commissioners for Her Majesty’s Revenue and Customs v London Clubs Management Ltd [2020] UKSC 49 (27 November 2020) — to read the judgment in full, click here).