02 February 2024

Hippodrome Casino Ltd v HMRC

The Upper Tribunal has released its decision on HMRC’s appeal in the case of Hippodrome Casino Ltd v HMRC.  The Hippodrome makes both taxable (sales of food, drink and theatre tickets) and non-taxable (gambling) supplies. It is therefore only entitled to recover so much of the overhead input VAT as is ‘used’ in making its taxable supplies. The legislation provides for a standard method based on the relative turnovers of the supplies made. However, the Hippodrome contended that its actual economic use of the overhead expenditure differed substantially from the attribution based on the standard method. The Hippodrome therefore applied the standard method override under reg 107B of the VAT Regulations 1995, and accounted for the difference between the standard method attribution and an attribution based on a floor space apportionment (with adjustments, notably to take account of the use of the taxable areas to make complimentary supplies) similar to that approved in London Clubs Management Ltd.  The FTT had found that on the facts of this particular case, the floor space apportionment in issue did provide a more fair, reasonable and precise proxy of its economic use of its overhead expenditure than the turnover based standard method.

The Upper Tribunal considered that the FTT had erred in law in failing to give reasons, and proceeded to remake the decision.  It held that the apportionment in issue did not provide a better proxy than the standard method.  In doing so, the Upper Tribunal has held that a Tribunal considering the application of the standard method override has a significantly more limited jurisdiction than when considering the application of the parallel special method override (where a taxpayer’s economic use of its expenditure differs substantially from an agreed Partial Exemption Special Method).  The Upper Tribunal also considered the interaction of the Input Tax Block on business entertainment with partially exempt businesses in the first case on this question.

Andrew Hitchmough KC and Ronan Magee, instructed by PwC, appeared for the respondent Hippodrome.

To view a copy of the decision please click here