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

HCL’s Proposed Floorspace Method

HCL is entitled to recover its residual input tax on the basis of the “standard method” which is based on HCL’s turnover. The standard method takes the value of HCL’s taxable supplies over a given period as the numerator (the top number), and the value of HCL’s taxable and exempt supplies as the denominator (the bottom number). The resulting percentage represents the recoverable proportion.

However, HCL takes the view that the standard method does not give rise to a fair and reasonable result in its case. Before the FtT and the UT it argued that the better approach, which arrived at a fairer and more reasonable result, was to determine the recoverable percentage by means of a floorspace method, which involved assessing the floorspace allocated to hospitality and entertaining on the one hand, and the floorspace allocated to gambling on the other. The relevant recovery percentage applying that method was found by taking taxable floorspace (comprising the hospitality and entertainment areas) as the numerator (top number) over taxable and exempt floorspace (allocated to gambling) as denominator (bottom number). The method took no account of areas which are not allocated to any particular activity (for example, kitchens and common parts). HCL put its floorspace method forward by way of SMO under regulation 107B of the VAT Regulations.

The difference between the standard method for which HMRC argues and the floorspace method for which HCL argues is significant in money terms, as can be seen from the following table which was set out at para 99 of the FtT decision and reproduced at para 151 of the UT decision:

Year

Total Overhead VAT £

Recoverable under SMO (£)