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

Lady Justice Whipple:

Introduction

This appeal by Hippodrome Casino Ltd (“HCL”) was first heard by the First-tier Tribunal (Judge John Brooks and Sonia Gable JP) under references TC/2018/05373 and TC/2021/01140. The FtT allowed HCL’s appeal. The Commissioners for His Majesty’s Revenue and Customs (“HMRC”) appealed to the Upper Tribunal (Judges Rupert Jones and Vinesh Mandalia) in a judgment with the neutral citation number [2024] UKUT 00027 (TCC). The UT allowed HMRC’s appeal. HCL now appeals the UT’s decision to this Court with permission granted by Asplin LJ.

HCL invites this Court to set aside the UT’s decision as wrong in law and to decide the matter for itself, or remit the appeal to a differently constituted UT for that purpose. HMRC resist this appeal arguing that the UT’s decision discloses no error of law and should be upheld.

The appeal raises questions relating to the basis upon which HCL, which runs a casino in central London, can deduct “residual input tax” incurred by it on goods and services supplied to it for business purposes and used for making both taxable and exempt supplies. HCL’s main argument is that the “standard method” of input tax deduction does not give rise to a fair and reasonable result and must be substituted. HMRC dispute this and submit that the standard method gives rise to a fair and reasonable outcome but that, in any event, HCL has failed to put forward an alternative method which would more accurately reflect the use of the various inputs. If HMRC wins on the main issue, a subsidiary issue arises about the treatment of the input tax attributable to business entertainment (in the form of free food and drink provided to customers). This is essentially a point of construction of the relevant regulation, with HCL arguing that input tax on business entertainment is restricted by that regulation only to the extent that the business entertainment was for taxable purposes; HMRC take the view that the restriction bites on all input tax used for business entertainment, regardless of the ultimate purpose of the entertainment.

The appeal on the main issue about the partial exemption method relates to the tax years 2012/13-2017/19. The subsidiary issue about business entertainment input tax relates to the years 2016/17- 2018/19 only.

Facts

The facts are set out by the FtT at paras 32-97 of its decision. The following is a summary taken from those paragraphs. HCL runs a venue known as the “London Hippodrome” in central London. The building was opened in 1900 as an indoor circus. From 1909 it became a music hall. In 1958 it was converted into a dinner dance venue. Between 2003 and 2005 it operated as a nightclub. In 2005 it was purchased by HCL and after a period of refurbishment it reopened in 2012. HCL’s intention was for the Hippodrome to operate as a casino but to be different from its competitors by offering a “Las Vegas style” experience including entertainment in a luxury environment.

The Hippodrome has five floors. It has areas for live gaming, higher-stake and lower-stake gaming machines, electronic gaming, poker, eight bars, a restaurant, private dining or meeting rooms, conference and event areas, outdoor terraces, an entertainment and conference space, lounges and a theatre which at the time of the FtT appeal hosted the show “Magic Mike Live”.

Gaming is the principal activity of HCL but it also operates restaurants, bars and a theatre. The FtT noted that although under the applicable regulatory framework it is mandatory for casinos to have non-gambling areas (which must not consist exclusively of lobbies or lavatory areas) the non-gambling areas in the Hippodrome are much larger than is required.

HCL makes complimentary supplies of food and drink to some of its most valued customers. These are mostly gaming customers but complimentary food and drink is also given to non-gaming customers, for example restaurant customers on their birthday.