Weekly VAT News

Hippodrome Casino Ltd: Input tax apportionment methodology – CA

The Hippodrome in Leicester Square has casinos, bars and restaurants, and a theatre. In 2022, the First-tier Tribunal agreed with Hippodrome Casino Ltd (HCL) that a floorspace-based standard method override (which improved HCL’s input tax recovery) was a better reflection of the use of HCL’s costs than the standard method, based on turnover. This was essentially on the basis that there was little crossover between the casinos (VAT exempt) on one hand, and the bars, restaurants, and theatre (taxable) on the other. The Upper Tribunal overturned this decision. The Court of Appeal has now upheld the UT’s decision unanimously. The CA found that the UT was correct to find material error in the FTT’s decision, and to set it aside. The CA considered that the FTT had failed to address HMRC’s core argument; that the areas designated as relating to taxable activity in HCL’s override calculation had a dual use, that is, the bar, restaurant, and theatre areas also economically supported and promoted gaming. The CA went on to find that, having set aside the FTT’s decision, the UT was also correct to remake the decision in HMRC’s favour. The standard method can only be overridden by another method that gives rise to a more precise result. The UT correctly identified this as the issue, and concluded that the floorspace method was not a more precise measure than the standard method. The CA also rejected HCL’s argument that UT should have “left [the door] open for further argument” if it was not persuaded by the floorspace method. The standard method applied by default, and HCL had failed to displace it. Finally, the CA agreed with HMRC that the input tax restriction on business entertainment expenditure must be applied to the pot of residual input tax, before the standard method is applied. The CA dismissed HCL’s appeal, thereby confirming the application of the standard method apportionment. (Contact: Judith Lesar)

Pharos Offshore Group Ltd v Keynvor Morlift Ltd: Interest on VAT element – HC

This judgment deals with consequential matters following the main judgment in a contract dispute whereby the High Court determined that the amount owed to Pharos, after setting off KML’s counterclaim, net of interest, was £495,668.68 inclusive of VAT. Of the five matters of principle to be determined, two related to VAT. Firstly, whether interest is payable on the VAT amount, and secondly, the resultant application of Part 36 of the Civil Procedures Rule (CPR36) which deal with issues of an ‘offer to settle’. In respect of the first matter, the HC concluded that VAT is part of the consideration, and therefore a qualifying debt within the meaning of the Late Payment of Commercial Debts (Interest) Act 1998 (the LPA). This meant that interest accrued on the VAT element. The fact that the definition the ‘Contract Price’ in this case excluded VAT did not mean that the VAT is excluded from the contractual obligation and therefore the qualifying debt. In respect of the second matter, the HC considered that the purpose of the CPR36 regime is to incentivise settlement. It found no basis to interpret CPR36 in a way that would exclude the VAT element from the "sum of money awarded", especially since the rules specifically excludes interest, not VAT. Therefore, the Court concluded that the enhanced interest rate under CPR36 applies to the entire sum, including the VAT element. (Contact: Andrew Clarke)

Xyrality GmbH: In-app purchases (pre-2015 rule changes) – CJEU

Xyrality, established in Germany, develops game applications for mobile devices. It marketed those applications using an ‘app store’, which was, until 31 December 2014, operated by X, established in Ireland. End customers using mobile devices could download those applications free of charge on the app store, and then make additional in-app purchases to obtain game enhancements. Following a purchase, the end customer received from X an order confirmation by email stating that the purchase had been made from Xyrality, and that the gross amount included German VAT. On reviewing the supply chain, the CJEU has determined that in accordance with Art. 28 of the EU Principal VAT Directive (PVD) there was a supply both to, and from, X. Whilst Implementing Regulation 282/2011 did not enter force until 1 January 2015, this provision explains and clarifies a concept appearing in the PVD and applicable since its inception, and should be taken into account. This was not displaced by the fact that the order confirmation specified Xyrality as the supplier and the VAT rate applicable in Xyrality’s EU member state. In reaching this conclusion the CJEU went on to confirm there was no derogation that place of supply of Xyrality’s services to X should be anything other than the general rule as per Art. 44, PVD (where the taxable recipient is established). Finally, absent a risk of loss of tax revenue given the non-taxable status of the end customers, Xyrality was not liable to account for German VAT based on the details in the order confirmation. (Contact: Nicole Brook)

Scottish budget date confirmed and Welsh Budget timing

Scottish Cabinet Secretary for Finance and Local Government (Shona Robison MSP) has confirmed, in a letter published by the Finance and Public Administration Committee of the Scottish Parliament, that the Scottish Government will publish the 2026-27 Scottish Budget and associated documents on Tuesday 13 January 2026.

An outline draft Welsh Budget is due to be published on Tuesday 14 October 2025, with a more detailed draft Budget published on 3 November 2025. The final Welsh Budget is due to be published on 20 January 2026 and debated on 27 January 2026.