October 22, 2018

The claimant, HMRC, appealed against the decision of the Upper Tribunal that, for the purposes of calculating gaming duty, the “value, in money or money’s worth”, staked by a player staking either a free bet voucher or a non-negotiable chip, known as “Non-Negs”, was nil.

As a promotional tool, LCM provided selected customers with Non-Negs so they could place bets free of charge. Non-Negs could only be used to place a bet at the gaming tables and could not be cashed or used to pay for goods and services.

The question on appeal concerned the interpretation of s 11(10)(a) of the Finance Act 1997 and what “value” (if any) should be ascribed to the Non-Negs once they were staked and lost. The issue was relevant to the liability of the defendant, London Club Management (LCM), to gaming duty in respect of Non-Negs that were lost to (or otherwise retained by) LCM as banker.

The Upper Tribunal had held that the “value, in money or money’s worth”, staked by a player staking a Non-Neg, was nil on the grounds that “… both the legislation itself and the authorities support the argument that the value of the stake staked is the amount which is put at risk by the player when staking the stake. That amount is the real amount of money or money’s worth that is risked in the game.”

Giving the lead judgment, Lord Justice Gloster said that the first critical point was that the relevant words of s 11(10) had to be construed in their “real-world, practical context” and not in an artificial world of possible or philosophical interpretations of the words “value” or “money’s worth.” In order to work out the amount of gaming duty due under s 11, the gross gaming yield had to be ascertained. This consisted of gaming receipts, i.e. charges made in connection with gaming on the premises, and banker’s profits, i.e. dutiable gaming taking place on the premises.

The purpose of s 11 as a whole was clearly to charge duty on the profits of a casino in its role as banker, Gloster LJ said, and profits were measured by the difference between “the value, in money or money’s worth, of the stakes staked with the banker in any such gaming” and “the value, in money or money’s worth, of the prizes paid by the banker to those taking part in such gaming otherwise than on behalf of a provider of the premises.”

The calculation of “stakes staked”, Gloster LJ said, involved a conventional arithmetical calculation of real-world stakes received from players and did not, on any natural reading, include artificial or notional values placed on tokens given to the player by the casino as part of a promotional or marketing exercise, which intrinsically had no value and were non-negotiable.

In real terms, when a casino gives out Non-Negs to favoured players, it is allowing the player to bet with the casino’s own money. There is no receipt by the casino contributing to its gross profits, Gloster LJ said. In fact, what the casino is actually doing is incurring a contingent (non-enforceable) liability to pay out, according to the relevant odds of the game, in respect of the face-value of the Non-Neg in the event that the chip is placed as a winning bet. It was counter-intuitive, he said, to characterise what was essentially an item of the casino’s own expenditure as part of the banker’s profits or as a stake having a value in money or money’s worth. In no sense could the face value of a Non-Neg, or even the value to the player calculated by reference to the chances of winning, feature as a receipt in a casino’s accounts or be said to contribute to its gross profits.

If that were wrong, Gloster LJ said, and a Non-Neg had to be characterised as a stake, such a stake still had no objective value in money or money’s worth. This was supported by the dicta in Aspinalls Club Ltd v Revenue and Customs Commissioners [2013] EWCA Civ 1464 and in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548.

Non-Negs were clearly not “the same as money” in the sense that cash chips were, Gloster LJ said. A Non-Neg could not be cashed in any circumstances or used for food, drink or services. A Non-Neg was not, therefore, the same as cash. Moreover, the player was not gambling with his own money or putting his own money at risk. The only “promise” that the casino made to the recipient of a Non-Neg was that, if the Non-Neg was placed on a winning bet, the casino would pay out winnings calculated by reference to the face value of the Non-Neg and would return the Non-Neg chip to that player so that he could bet with it again.

Further, when the player lost the Non-Neg, he was not losing cash, but merely the right to use that chip to place a bet on the table.  Therefore, Gloster LJ agreed with the Upper Tribunal that, on an objective assessment of value, a Non-Neg could have no value in money or money’s worth for the purposes of s 11.

As for the value of a Non-Neg as a prize, Gloster LJ again agreed with the Upper Tribunal that the benefit that a retained Non-Neg provided was no different from that of an original Non-Neg. As no payment was required for the original Non-Neg, there could be no payment in money that the Non-Neg could replace. Staking a Non-Neg in a casino game did not entail some sort of “payment” in return for a “benefit”. Gloster LJ also agreed with the Upper Tribunal that s 20(4)(b) of the 20 of the Betting and Gaming Duties Act 1981 applied since the use of a Non-Neg was restricted and could only be used as a stake, which had no value. Accordingly, the appeal was dismissed. (HMRC v London Clubs Management Ltd [2018] EWCA Civ 2210 (9 October 2018) — to read the judgment in full, click here).