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Bookmakers land £1bn tax rebate in fixed-odds betting VAT 26/07/18
• Industry still reeling from government’s cut in maximum FOBT stake from £100 to £2

Bookmakers are in line for a £1bn tax rebate after a court ruled they were wrongly charged VAT on revenue from controversial fixed-odds betting terminals (FOBTs).

The finding, in a case brought against HM Revenue & Customs by the high-street bookmaker Betfred, will be seen as a major victory for an industry reeling from the government’s decision earlier this year to slash the maximum bet on FOBTs from £100 to £2.

A tax tribunal ruled that collecting VAT on FOBTs between 2005 and 2013 had “breached the principle of fiscal neutrality” because similar roulette-style games played in casinos and online were exempt from the tax.

A spokesperson for HMRC declined to say whether it would appeal against the verdict, but said: “This is an important judgment and HMRC is giving it careful consideration.”

If HMRC does not seek to overturn the ruling, or is unsuccessful in its appeal, the rebate for the whole of the bookmaking sector is expected to be at least £1bn. Industry sources said Betfred alone was likely to reclaim £100m.

The industry-wide figure is based on the rate of VAT paid on combined income from FOBTs between 2005 and 2013, which amounts to more than £8bn plus interest.

Campaigners speculated that concern within the Treasury that Betfred, which is owned by the billionaire Conservative party donor Fred Done, would win the case might have been behind its much-criticised decision to delay implementation of the FOBT stake reduction until April 2020. The Treasury already plans to offset the loss of duty from the machines by increasing the tax on online gaming.

However, the postponement would allow it to cushion the impact of the expected £1bn tax rebate by extending the period during which it continued to collect duty from FOBTs.

Bookmakers also stand to benefit from the delay, on top of any tax rebate they receive, because they derive more than half of their revenue from FOBTs, about £1.8bn a year.

The Labour MP Carolyn Harris said: “I am incensed by this news and frustrated that due to recess we can’t bring the chancellor to the house to answer questions. If this government is guilty of playing Russian roulette with the lives of problem gamblers by holding off introducing the cut in FOBT stakes, as a sweetener to protect the Treasury from the wrath of the bookies, it will be beyond belief. If the bookies have this kind of power over the chancellor then this government is in more trouble than any of us can imagine.”

Matt Zarb-Cousin, the spokesman for Fairer Gambling, which campaigns for tougher industry regulation, said: “Instead of giving the bookies a double win, Treasury should instead put the tax for remote [online] gambling up to at least 25% in the budget this year and enact a £2 stake on FOBTs by April 2019.”

The Treasury said that any suggestion it delayed the cut in stakes because it expected a £1bn hit from the tax ruling was “completely untrue”.

A spokesperson said: “We have been very clear that fixed odds betting terminals stakes will be cut to make sure we have a safe and sustainable industry where vulnerable people and children are protected. But we must get this right, so we’re engaging with the industry to make sure it has appropriate time to implement the changes.”

Betfred’s case hinged on its claim that the decision to apply the 20% VAT rate to FOBTs from 2005, on top of a 15% betting duty to which they were already subject, was a breach of European tax law. HMRC removed VAT from the machines in 2013, replacing it with machine games duty that started at 20% and has since risen to 25%.

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