CA-2024-000806 - [2025] EWCA Civ 1259

Decision of the UT

HMRC was granted leave to appeal to the UT which heard the appeal on 3-4 October 2023 and delivered its decision on 29 January 2024. HMRC’s main argument on appeal was that the FtT had erred in rejecting without reasons the arguments based on dual use (para 4). HCL submitted that the FtT had adequately addressed HMRC’s dual use argument, indeed finding in favour of HCL on that issue (see paras 40 and 50). The UT held that the FtT had failed to address the issue of dual use (paras 63, 78 and 79) which was a material error of law which meant the FtT’s decision had to be set aside (paras 81 and 98).

The UT remade the decision, directing itself that the issue was whether the SMO for which HCL contended (based on floorspace) guaranteed a more precise determination of the deductible proportion of the residual input VAT than that achieved by the turnover-based standard method (para 122) and that the burden of proof was on HCL (para 126). It had regard to the findings of fact by the FtT (para 138) but also made additional findings based on the available evidence (para 139). The UT accepted HMRC’s case on the evidence and found that the areas allocated to hospitality and entertainment were also used economically for the gaming business in various ways (para 162); the hospitality and entertainment areas were not “independent offerings” that were entirely separate from the gaming, rather HCL made significant economic use of those areas for the purposes of its gaming supplies (para 170). It found that HMRC’s case on dual use was made out (para 173). This was its conclusion on the evidence:

Standing back and having considered the evidence before us holistically, we find that the economic reality is that the floor areas of the Hippodrome allocated for hospitality and entertainment have significant dual use for gaming as well. Most importantly, we find that the hospitality and entertainment areas were significantly used economically for the gaming business. That is, they were used to make all the supplies of the various strands of the business, both taxable supplies (hospitality and entertainment) and the exempt gaming supplies. The residual costs for these areas are also incurred in order to provide the necessary premises and facilities for carrying out the non-taxable strand to HCL’s business.”

The UT held that HCL had not shown that the floorspace method provided a more precise measure of use than the standard turnover method (paras 180 and 181) for reasons set out (paras 182-195). The number of non-gambling customers was not a good proxy for use (para 195). The standard method therefore applied (para 196).

The UT addressed the adjustment which was required by the Input Tax Order, restricting the recovery of input tax on business entertainment which included the provision of food and drinks free of charge to customers. That was not an issue which the FtT had addressed but it arose as a result of the UT’s conclusion that the standard method applied. The UT accepted HMRC’s arguments that the restriction to reflect business entertainment had to be made at the outset of the apportionment exercise. It rejected HCL’s opposing submission which would have given HCL a larger recovery in this case (para 207).

HCL’s appeal was dismissed and the decisions of HMRC upheld (para 211).