This case is the latest in a long line of cases concerning the correct VAT treatment of takings from slot machines, and in particular whether the takings could be said to be VAT exempt.


The Appellant (Rank) operated coin operated computerised slot machines. The outcome of any game was selected by a Random Number Generator (“RNG”), which produced random numbers all of the time, with the most recent number determining the outcome of any particular game.

Rank operated “multi-terminal” systems, which involved a number of machines all being connected to the same RNG. Whilst each system was different, they each involved the RNG being housed outside of any one machine, but being connected to each machine by a wire.

The VAT Act 1994, as it was then drafted (it has subsequently been amended), provided that the takings from a gaming machine (such as each slot machine) were VAT exempt unless the “element of chance” in relation to each game was “provided by the machine”.

The question in issue therefore was whether, because the RNG was housed outside of the slot machines, it could be said that it was the RNG (and not the machines in question) that provided the element of chance for any game played on the machines, such that the takings from the machines were VAT exempt.

The Court of Appeal decision

The Court of Appeal first decided that the definition of a “gaming machine” for VAT purposes was taken from the similar definition in the Gaming Act 1968.

Looking at the policy behind the Gaming Act 1968, the Court could see no reason to distinguish between a slot machine where the RNG was housed within the machine itself and the situation where the RNG was separated from the machine by a wire.

The Court also considered it important that, if such a distinction was drawn, then it would make VAT on slot machines effectively a voluntary tax; the tax could easily be avoided by separating out the RNG from the slot machine, as was the case here.

The Court of Appeal therefore overturned the earlier decisions of the VAT & Duties Tribunal and the High Court, and held that the “element of chance” for any game was in fact provided by the slot machine, and the takings from the machine were therefore subject to VAT.

Supreme Court

The Supreme Court unanimously upheld the decision of the Court of Appeal. The Court did not, however, place reliance of the similar wording in the Gaming Act, with Lord Carnwath opining that not much was to be gained from such a comparison; it could not be assumed that, even where similar drafting was adopted, the draftsman of the VAT Act intended the words, in a VAT context, to have the same meaning as in the Gaming Act.

Lord Carnwath did, however, conclude that the natural meaning of the word “machine” could include the entire apparatus which is necessary for the game to be played, including the wire and the RNG, even where the RNG is housed outside of any one slot machine.

In any event, Lord Carnwath considered that you could not answer the question of whether the “element of chance” was provided by the machine in question in the abstract; whether an element of chance was being provided depended on whether someone was playing a game, which in turn depended on the player pressing the relevant button on the machine.

The element of chance in any one game is not in fact provided by the RNG, but is rather provided by a player pressing the button in order to interrupt the constantly changing sequence of random numbers, with the latest random number determining the outcome of the game.

In this sense, the element of chance is therefore provided by the machine itself, and therefore the VAT exemption did not apply, and the takings from the machine were subject to VAT.


The outcome of this case was to be expected; given the ease with which a RNG could be removed from a slot machine it was always unlikely that the Court would reach a decision which would have made it so simple to avoid VAT.

Lord Carnwath’s reasoning, based on the wording of the VAT Act as it was then drafted, is difficult to fault, and is a common sense interpretation of the statute.

It is, however, helpful for tax advisers that Lord Carnwath did not accept that the equivalent Gaming Act provisions, and the policy considerations behind those provisions, could be taken into account.

The VAT Act provisions that concern gaming frequently use similar drafting to the Gaming Act, but the policy considerations behind both Acts are quite different, and so the interpretation of the VAT Act provisions should not depend on the meaning given to similar provisions in the Gaming Act.