This case concerns a dispute between HMRC and the Rank Group PLC as to whether a series of gaming machines were or were not entitled to the exemption under VAT Act 1994 for gaming activities, which turns on the question of whether the element of chance in the game is provided by “means of the machine”.

The amount of money at stake is significant, with Rank looking to reclaim around £35 million of VAT. The outcome of the appeal may also govern outstanding claims by other operators which, if successful, could cost Her Majesty’s Revenue more than £1 billion.


An exemption in VAT legislation has existed in various forms since 1973, more recently described in VATA 1994 Sch 9 Group 4 as for “[t]he provision of any facilities for the placing of bets or the playing of any games of chance.” However, this does not include “the provision of a gaming machine”, with Note 3 to Group 4 defining ‘gaming machine’ as one where, inter alia, “the element of chance in the game is provided by means of the machine”.

The disputed machines are commonly referred to as ‘slot machines’, which are traditionally coin-operated and, upon pressing a button, spin a number of video or mechanical reels to display a randomly selected sequence of symbols determined by a random number generator (“RNG”). However, in some, the RNG is housed separately from the main machine cabinet (and in some cases one RNG is used to serve a number of machines), allowing them to fall short of the definition of a gaming machine in Note 3 and therefore be exempt from VAT.

On that basis, Rank argued that the treatment of these disputed machines as exempt but others as taxable (known as ‘Part III machines’) was in breach of the principle of fiscal neutrality such that all slot machines should be exempt. Rank sought to reclaim VAT it had paid to HMRC between 1 October 2002 and 5 December 2005, after which time an amendment to legislation came into force ending the distinction between different types of machines.

Case History

In August 2008, the VAT and Duties Tribunal allowed two appeals against decisions by HMRC to reject ‘voluntarily disclosures’ by Rank, which effectively constituted claims for what Rank regarded as overpaid tax. HMRC appealed both of these decisions, known respectively as the “Bingo appeal” and “Slots appeal”, both of which were subsequently dismissed by Norris J in the High Court.

Before permission was granted appeal the decision in to the Court of Appeal, a reference was made to the Court of Justice of the European Union, which ruled in favour of Rank and stated that the EU principle of fiscal neutrality can be invoked in circumstances where the UK has treated certain similar gaming machines differently for VAT purposes.

Following the CJEU reference, the only ground of appeal with which HMRC proceeded was the first ground of the Slots appeal, namely whether the disputed machines were or were not exempt from the VAT under domestic legislation at the relevant time.

Court of Appeal decision

In the Court of Appeal, HMRC argued that the disputed machines did not make exempt supplies at all (in direct contrast to its previous position) and should have been taxed as Part III machines, which would avoid the issue of fiscal neutrality. The question before the Court of Appeal, therefore, concerned the correct interpretation of the words “gaming machine” in the VATA 1994 and consequently whether the element of chance was being provided bymeans of the machine” in relation to the disputed machines. If this was held to be the case, Rank would not be able to reclaim the VAT it had paid during the relevant period.

The Court of Appeal found in favour of HMRC. It was persuaded by HMRC’s argument that the definition in Note 3 was drawn directly from the definition of a Part III machine in section 26 of the Gaming Act 1968. Unlike in the VATA 1994, section 26(2) of the Gaming Act required the element of chance to be provided by means of a machine (using the indefinite article) instead of the machine) and, through section 52, “machine” also included “any apparatus”. Rimer LJ, giving the leading judgment, observed that it was “inconceivable that the draftsman of Note (3) did not have section 26 in front of him”. He then went on to say:

“It makes no sense that it can be possible to segregate the component parts of a single terminal into two separate, but connected, units which together continue to perform the identical function as they did before and then to be able to claim (i) that the ‘machine’ played by the player no longer provides the ‘element of chance’ since that is now provided by the separate RNG, and that (ii) therefore neither of the two units is a Part III machine.”

The court was also convinced by the argument that interpreting Note 3 in a narrow way would essentially lead to VAT on such machines being ‘voluntary’ and could be simply avoided by deliberately removing the RNG from the main housing and hanging it on the wall behind the machine.

Supreme Court

Rank was granted leave to appeal by the Supreme Court and the case was heard by Lord Neuberger, Lord Reed, Lord Carnwath, Lord Toulson and Lord Hodge on 21 April 2015, which can be viewed on demand on the Supreme Court’s website. The appeal focussed on whether the definition in Note 3 also applies where one RNG is used to serve several machines.