Bookies could be set for £1 billion VAT refund following FOBT case

High street bookmakers could be set for a windfall worth as much as a billion pounds or more after a judge found in their favour in a tax battle with HM Revenue & Customs involving FOBTs.

The news may reignite the debate over the controversial machines, on which the maximum stakes are to to be reduced to £2 from £100, and the timetable for making that change.

Betfred brought the case, saying they had been incorrectly paying VAT on their winnings on FOBTs between 2005 and 2013 as the same games or similar games available on the machines were exempt from the tax when played in casinos or online.

The First-tier Tribunal Tax Chamber has found that almost all the FOBT games considered were sufficiently similar and that for them to be treated differently for VAT purposes breached the principle of fiscal neutrality.

The tribunal therefore found that the FOBT games should have been exempt from VAT and found in Betfred's favour.

FOBTs were originally subject to betting duty at a rate of 15 per cent. VAT was then imposed in 2005 before being replaced by machine games duty (MGD) in 2013 at 20 per cent, a figure subsequently increased to 25 per cent.

Betfred managing director Mark Stebbings said: "We welcome the decision regarding the historical tax treatment of fixed odds betting terminals which pre-dates the introduction of machine games duty in February 2013. It does not concern Betfred’s ongoing tax liabilities."

Betfred: expecting tax windfallCredit: Phil Mingo/Pinnacle

The amount to be repaid has not been agreed but it is understood that Betfred's claim could be in excess of £100 million and if the decision is applied industry-wide, the total figure could be in the region of £600m to £800m.

However, respected industry analyst Warwick Bartlett said in the latest bulletin from his company Global Betting and Gaming Consultants: "The hike in MGD to 25 per cent will no doubt cover the repayment due. Unless of course DDCMS [the Department for Digital, Culture, Media and Sport] decides to impose the £2 stake limit earlier than anticipated. This seems unlikely when the sum to be repaid could be more than £1 billion."

Other bookmakers were reluctant to comment other than to say they were keeping tabs on the case.

William Hill's director of corporate communications Ciaran O'Brien said: "We are monitoring developments."

HMRC have leave to appeal in which case a final verdict could be months or even years away.

A HMRC spokesperson would not be drawn on whether an appeal was planned, saying: "This is an important judgement and HMRC is giving it careful consideration."

When, in 2016, tote and football pools company Sportech finally claimed victory over the taxman in its long-running battle to reclaim £97 million in VAT, the decision came nearly eight years after they had originally launched the claim.

In May, the government announced it planned to reduce the maximum stakes on FOBTs to £2 from £100, a move retail bookmakers said would lead to thousands of betting shop closures and job losses.

However, it is not yet clear when the reduction will take place with some speculation that it will not be imposed until 2020.

Tracey Crouch, the minister with responsibility for gambling, told the BBC last weekend that the plan was to introduce the legislation needed to make the change to £2 this autumn and that the reduction would take place in the next financial year.

This week's decision on VAT will raise suspicions among campaigners who claim that the Treasury has delayed a £2 stake to make up for lost tax income.

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