In Hippodrome Casino Ltd v HMRC [2025] EWCA Civ 1259, the Court of Appeal (CoA) found that the partial exemption standard method had to be used by a casino for VAT, rather than its 'special method'.
Hippodrome Casino Limited (HCL) was a Partially exempt business for VAT as it made taxable supplies of hospitality and entertainment, as well as exempt gaming supplies.
- HCL provided a wide range of services, including gaming facilities, eight bars, a restaurant with a celebrity chef, meeting rooms, conference facilities and a theatre.
- HCL claimed that the residual input VAT on overhead expenditure should be apportioned between taxable and exempt supplies based on the floor space utilised by each activity (a 'special method'), rather than the standard method, which is based on the turnover created by each respective supply.
- HMRC contended that HCL’s method did not give a more reasonable apportionment than the standard method.
- HCL Appealed to the First Tier Tribunal (FTT). The FTT allowed the appeal, finding that a floorspace-based apportionment was a more appropriate methodology for calculating the input tax attributable to taxable and exempt supplies.
- HMRC then appealed to the Upper Tribunal (UT), which found that HCL could not show that the special method, based on floorspace, provided a more precise measure of use than the standard turnover-based method.
- HCL appealed to the Court of Appeal (CoA).
Relevant law
- EC regulations, on which domestic UK legislation is based, dictate that where input VAT is incurred on a combination of taxable and exempt supplies, only input VAT on the former is deductible.
- The standard method for calculating the deductible proportion is based on the turnover of the respective activities.
- However, the standard method may be overridden if an alternative method gives a 'more reliable' attribution of the input VAT between the two types of supply, and the difference between the methodologies is substantial.
The CoA found that:
- The UT had been correct in determining that HCL’s floorspace-based calculation did not give a ‘more reasonable’ attribution of input tax between taxable and exempt supplies.
- This was because the floorspace-based calculation assumed that non-gambling areas of the premises were only used by non-gamblers. In reality, there was significant use of the bars, restaurants and entertainment areas by casino gamblers.
- Due to this dual-use nature of the non-gambling areas, the UT had been correct in finding that using the floor area of these spaces to determine the extent to which input VAT related to taxable (non-gambling) activities did not provide a more accurate result than the standard (turnover) method.
- The UT had been correct in finding a material error in the FTT’s decision, in that the FTT had failed to consider the dual use of the different areas.
The appeal was dismissed.
Useful guides on this topic
Partial exemption and input VAT
How do you calculate the amount of input tax you can recover under the VAT partial exemption rules? What are the de minimis rules?
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