02 April 2020 - Article
I often think that VAT is interesting mostly for what I learn, in passing, from clients and from case reports about goings on in the world. By means of reading cases I have learnt interesting commercial facts about part exchange of cars, about car lease business models, about the financial position of local authority parking, and about park and ride. And these are only examples relating to cars. There is much else besides. But even after thirty odd years in VAT I was surprised at the insights offered by the Laughton/Victorangle decision (TC02994). Laughton is a professional gambler whose horse knowledge is sufficient, he says, to make a living out of placing bets. Whilst he had at one time made money on the side by selling racing tips, he gave that up when the market became stagnant and concentrated solely on gambling for himself. But the bookkeepers had become unhappy with his success rate and closed his accounts. His only outlet at that stage was to ask people he knew to place bets as his agent. He would provide the stake, and they would remit the winnings. But two things were to bring him into conflict with HMRC. One was that he contracted this arrangement through companies that had carried on the taxable tipping business, and had unfortunately accounted for VAT on the winnings he was now receiving from his agents. The second was his way of providing the stake money. He asked the agent to place the bet using the agent's money, and then remit the winnings net of both winning and losing stakes. This was not quite the same (though the same in effect) as sending money to be used as the stake. Mr Laughton, unsurprisingly, regretted paying VAT on the winnings of bets. When he asked for it to be reimbursed by HMRC, they disagreed, and said the income was subject to VAT. Whilst it is, unfortunately, too common for HMRC to seek to defend extreme positions, this was a very extreme position indeed. It implied that Mr Laughton's winnings were really a charge to the person who had placed the bet, for a service. The type of service seems fairly obvious. After all, if the shadow punter saw how often Laughton won, he would place a bet on the same nags, and join in the benefits. This meant that the information constituted a tip. But his only real 'payment' was the service of covertly placing Laughton's bet using his stake. It was outlandish to claim that all of the money returned to Mr Laughton was consideration for that information, since it had no particular quantitative link with the use the agent made of the knowledge, and the agreement between the parties did not involve it being regarded as a fee paid by the shadow punter, but merely money belonging to Mr Laughton being returned to him. Whilst HMRC had been consistent in the view that there was a supply of a tipping service, it does appear that they became wary of trying to link the payment to the shadow punter's related benefit of being able to back the same horse with his own money. This caused them to suggest that the payment was made directly in return for the ability to place Mr Laughton's bet. But as the punter had no hope of making a penny out of placing that particular bet, and in any case, he paid nothing in respect of losing bets, the HMRC argument was reduced to something little short of a conceptual farce. The judge did not miss the point that the true benefit for the shadow punter was the expert knowledge embedded in the requisite information. However, and perhaps because HMRC had not even attempted to argue that there was a bargain entailed in this, she decided that this benefit was merely coincidental with the arrangement and did not represent consideration for the placing of Mr Laughton's bets. In other words, there was no supply. But there surely should have been an argument on HMRC's behalf that the value of the punter's service was consideration for the tip he effectively received. The entire deal was a barter exercise. HMRC missed that completely. In their greed to extract tax from a large but unrelated payment, they dropped entirely the sensible target, which would have produced some revenue at least, though not as much. One is reminded of the children's story of the lion (or sometimes a fox) who is persuaded by the prey already in his jaws to drop it in preference to some bigger opportunity, but which then loses both. Greed never pays, but HMRC is far too often guilty of plain greed. And another aspect of this case that left your writer with a bad taste is HMRC's attempt, reported by the judge, to suggest that Mr Laughton was dishonest and that the unwillingness of bookmakers to entertain his bets showed something underhand about his methods. It seems fairly obvious that these were bullying tactics. If Mr Laughton had something to hide, then he would not want to have a case about his methods heard in public, so HMRC seems to have decided on a strategy of 'playing chicken'. 'Shum Chicken. Shum Neck'! Many advisers dealing with VAT and other taxes often comment on the extremely poor quality control HMRC exercises over the cases they decide to pursue all the way to the tribunal doors. It is public money wasted and causes alarm and confusion. The tendency in HMRC to adopt a greedy reaction to what they see as an 'opportunity' is too heavily ingrained. This case is an example of this cultural weakness, which ought to be addressed.