No such thing as a safe bet for Darling

When it comes to luck, Alistair Darling must surely be wondering where his good fortune has gone.

The chancellor faces the prospect of paying out hundreds of millions of pounds in VAT rebates to bingo halls, amusement arcades and pubs up and down the land. The rebates are on takings from one-arm bandits fruit machines and cash bingo machines in unlicensed premises.

Rank Group’s tribunal success over a claim for £36.3m in VAT repayments from 2003 to 2005 is set to open the floodgates.

The owner of the Mecca Bingo clubs cited an earlier European Court of Justice case, Finanzamt Gladbeck v Linneweber, in its claim.

The Linneweber case in 2005 established it was unlawful for gaming machines outside of casinos to be taxed, while those on betting premises were exempt. The case reinforced the EC’s long-standing principle of fiscal neutrality. Rank’s counsel, Dr Paul Lasok, referred to the ECJ ruling that if goods and services are similar they are ‘thus in competition’ and should receive the same tax treatment.

But while the Treasury can avoid immediate payouts by challenging the decision, it looks like it’s
living on borrowed time and will eventually have to cough up.

This is not good news for a government still licking its wounds over the split in ranks from scrapping the 10p income tax bracket. Darling also has to find fresh money to finance the £2.7bn cost of raising the personal income tax allowance to £6,035 in the wake of the 10% income tax debacle.

Paddy Behan, head of indirect tax services at Mercury Tax Group, says: ‘Public finances require the government to raise more tax. Politically, it is virtually impossible for them to increase rates, so they must do so either in their collection and litigation strategy ­ they must keep their tax base secure and extend it where they can. This is a huge setback for them.’

The rebates could go back as far as 1972 when VAT was first introduced following the Marks & Spencer victory for the removal of time limits on VAT claims.

But at the very least, bingo halls, pubs and clubs will expect to be refunded for the VAT payments made in the past three years.

The challenge for Darling will be to find something safe to tax ­ place your bets now.