The High Court has recently issued its decision on a breach of fiscal neutrality in the tax treatment of the supply of mechanised cash bingo (MCB). This means that participation fees for playing MCB should have been exempt from VAT and businesses can now submit claims to HMRC for repayment of any output tax wrongly accounted for, subject to certain guidelines.

The operator of Mecca bingo halls claimed there had been inconsistencies in the way VAT had been applied to the participation fees customers paid to play MCB and to the takings of gaming machines.

The High Court found that there had been a breach of fiscal neutrality in the case of MCB as some participation fees were taxed while others were exempt. Fiscal neutrality means that similar supplies must be treated the same for tax purposes to avoid any distortion of competition. The decision holds that all participation fees for MCB should have been exempt from VAT. The gaming machine case is continuing, with a VAT Tribunal hearing later this year.

HMRC will now consider claims for output tax wrongly accounted for by bingo operators on MCB participation fees. As bingo duty is charged on the VAT-exclusive value of participation fees, this judgment will have an effect on bingo duty declarations although HMRC is still considering the precise implications.

Where a business wishes to make a claim to HMRC for output tax wrongly accounted for in respect of MCB participation fees evidence must be produced that output tax was accounted for. All claims will be subject to the four-year time limit in section 80(4) of the VAT Act 1994 (as amended) and no claim for periods ending on or prior to 31 March 2006 will be considered. HMRC may reject all or part of a claim if repayment would unjustly enrich the claimant.

Full details on the guidelines on making a claim are available at http://www.hmrc.gov.uk/briefs/vat/brief4009.htm