Britain’s second largest bingo operator has won the latest stage of a long-running legal battle with the taxman, capping a week of good news for the beleaguered industry.
A tribunal ruled on Tuesday that HM Revenue & Customs must refund £25.9m ($42.1m) in value added tax collected from Rank.
The decision comes after the pre-Budget report’s 2 percentage point cut in gross profit tax to 20 per cent last week, followed the next day by an announcement that all bingo games would be exempt from VAT.
The bingo industry, under severe financial pressure, had lobbied against both VAT and the level of gross profits tax, saying it was unfair it suffered a higher tax rate than that applied to other forms of gaming and betting.
Deloitte, a professional services group, has calculated the leisure industry could be owed more than £500m in overpaid VAT.
Rank’s tribunal victory and its subsequent claim prompted some analysts to raise their share price target for the company, which has been struggling in the face of the smoking ban and the recession.
The tribunal on Tuesday backed Rank’s claim that it had overpaid VAT on certain types of amusement machines between 2002 and 2005.
In a London Stock Exchange statement, Rank said it expected to receive £25.9m payment from HMRC during the first quarter of 2010.
Rank noted, however, the Court of Appeal was due to hear an appeal by HMRC next April about the amusement machine ruling, and a separate one concerning the application of VAT to bingo.
The case concerned variations in the tax treatment of “one-arm bandits” – the coin-operated machines that randomly generate cash pay-outs.
Before 2005, when the government revised the rules, some of these machines were exempt from VAT depending on whether or not the “random-number generator” – a device that determines the outcome of the game – was located on the machine or separately.
Tuesday’s decision follows an interim ruling from the tribunal in August 2008 that the UK’s VAT treatment of amusement machines contravened the European Union’s principle of “fiscal neutrality”, under which governments are barred from treating similar goods or services differently for VAT purposes.
HMRC said it was “currently considering this tribunal decision carefully” and it would issue a briefing note once it had decided its course of action.