Club Law and Management
by Philip Smith, Secretary of the A.C.C.
Automated Lottery Machines - Victory
Following a VAT Tribunal decision HMRC have now accepted that Automated Lottery Machines, known as Category B3A machines in the Gambling Act 2005, are exempt from VAT. Automated Lottery Machines have been in Clubs for over ten years. During this time they have been exempt from both
VAT and Amusement Machine Licence Duty (AMLD). HMRC had inspected these Machines on countless compliance visits without challenging their lottery status and exemption from VAT and AMLD. At no point during the usage of these machines was the prospect of tax raised. Following the implementation of the Gambling Act 2005, the Gambling Commission set out detailed technical rules that state that the newly categorised B3A Machines must only offer lottery games. B3A Machines have to be approved by an independent testing institute to
ensure they comply with lottery rules. Despite this HMRC decided that these machines were liable to VAT and, in addition to imposing VAT on these machines going forward, they attempted to retrospectively claim VAT on these machines.
Thankfully HMRC have now performed a u-turn on both of these decisions. In a letter to the ACC
recommended supplier Dransfields, senior HMRC tax avoidance officer, Glenda Bloxham stated:
"We accept that the B3A machines ........... do grant the right to participate in a lottery. The takings therefore are exempt from VAT under the terms of VAT Act 1994, Schedule 9, Group 4, Item 2.
HMRC will therefore not be pursuing the VAT issue further in respect of these machines"
This means that HMRC will not continue to pursue Clubs for retrospective VAT on these machines and that from this point forwards VAT will not be applicable on these machines. There will also be an opportunity going forwards to reclaim any VAT previously paid for these machines, details of which will be published in a future edition of the magazine.
Dransfields, together with the ACC, have been leading the fight since 2007 against the earlier ruling by HMRC that the machines were not exempt and that they did not grant the right to take part in a lottery (thus justifying the VAT exemption). The new HMRC decision shows that we were correct in our interpretation of the VAT Act 1994 and HMRC were wrong. We have always been determined to protect Clubs from threatened retrospective taxation on these machines and it will be a huge relief to Clubs to know that this threat has now been lifted.
However, HMRC have not reversed their decision on AMLD being due and still insist that AMLD is payable on the machines. The ACC, in conjunction with Dransfields, will continue with a challenge to this ruling at a further Tribunal.
This is very welcome news for all Clubs facing the prospect of a retrospective VAT taxation bill on these machines and also for all Clubs that continue to use these machines or have done in the past since past VAT will also now be reclaimable.
In addition to thanking Dransfields for their assistance, we would like to express our gratitude to Philip Davies MP, Vice Chairman of the ACC, for raising this at Westminster and for tabling an Early Day Motion in support of clubs.
Along with Automated Lottery Machines, Skill Based Gaming Machines have also being targeted by HMRC for the introduction of AMLD which could be applied retrospectively and this case continues. These machines have traditionally been categorised as Skills with Prize (SWP) Machines which are not liable to AMLD but following a statement issued by HMRC last year these machines are to be reclassified as ‘Games of Chance’. This will render them liable to AMLD. Whilst the decision regarding Automated Lottery Machines has no bearing on this case the ACC and Dransfields will continue to fight against this decision to reclassify Skill Based gaming Machines so that they are liable for AMLD. Further updates will be included in the magazine.
Update of the Year's Events
The Update of the Year’s Events is a regular feature in the December edition of the Magazine. This provides us an opportunity to revisit legislation changes and subjects on the running of Private Members’ Clubs.
Whilst politically the overriding news has been the successful election of the Conservative Party to Government it is the nation’s finances that have subsequently dominated the news. This year has the seen the end to several long running issues which Clubs have faced such VAT on category B3A Machines, the Linneweber case and the Equalities Act. The current Licensing Act consultation leaves several unanswered questions for 2011 and we await a verdict on the Sky Television case.
At the beginning of this year we had VAT return to normal levels and in January of next year we will see it increased to 20%. On a logistical side this will mean that Clubs should revaluate their pricing policies for food and drinks with possible increases across the board. Clubs should encourage members to renew their subscriptions prior to January and be charged at the 17.5% rate and not the new 20% rate.
As usual there have been cases where Licensing Officers have misinterpreted the Licensing Act 2003, normally in regard to Members’ events and guests. However, on the whole Licensing Officers have accepted the right for Members to hold private events and invite guests into the Club. Clubs must now play their part by accepting the Rules on Members’ events and apply for Temporary Event Notices when an event or function cannot be properly justified as a Member’s private event.
The ACC Magazine has continued to run the ever popular Q&A sections although there have als o been articles included on the HMRC Gaming Machines situation, Licensing Consultation and the Equalities Act. I have continued to advise against equipment lease schemes as these rarely, if ever, provide value for money. These types of agreements still all too frequently cross my desk. As a rule of thumb, any arrangement in which equipment is hired for the Club is far more expensive than simply purchasing the equipment, even if the equipment was just purchased on a standard credit card and paid off by instalment.
Employment Law update
On the 1st October 2010, the National Minimum Wage was increased for all workers aged 21 and over from the current level of £5.80 to the new level of £5.93. For workers aged 18-20 the NMW is increased from £4.83 to £4.92 and for persons aged under 18 the new level is £3.64, up from £3.57. We advise all Clubs to make sure your contracts are up to date and reflect the new rate where appropriate.
Employment Tribunals continue to be a problem for all Clubs. With no barrier to making a claim for unfair dismissal, even a Club which dismisses an employee by the book is likely to still face such a claim. They then have to spend time and money compiling documents, taking statements and eventually attending a tribunal hearing which can last several days. Whilst Clubs are entitled to represent themselves without employing a Solicitor, many Clubs are reassured by the presence of legal support in the tribunal hearing which increases their cost further. Even a successful tribunal result will often still leave a Club several thousand out of pocket due to fees and time spent in preparing the case. Often a Club, even with a good case, will elect to settle as this removes any prospect of defeat and saves money on legal fees. Whilst completely understandable this means that anyone who is dismissed will automatically take a Club to an employment tribunal even if they merely hope to settle with the Club for some limited amount of money before the hearing is heard.
The core legislation surrounding how employment tribunals are heard and how claims are made needs to be reviewed and there is a possibility that this will happen in the future. In the meantime the ACC continues to assist Clubs on such cases and we recommend that Clubs also check their insurance as often they will have legal cover provided with their insurance. Finally, if in doubt please contact the ACC before making a employment decision which the Committee are unsure of. We can safeguard Clubs far more effectively if we are consulted before a decision has been relayed to the employee.
The case regarding the copyright on Premier League football matches was heard in the European Court of Justice (ECJ) earlier in October and a judgement is expected early next year. Until such a judgement has been delivered I must continue to advise that these systems are currently considered illegal under UK copyright law. The case has reached the ECJ because the pub landlord being prosecuted has lost this case multiple times already and has appealed each time. Should the ECJ dismiss this final appeal then it is likely that prosecutions against all premises with these systems will be undertaken.
Whilst this case has being going on, the Media Protection Service has also brought personal prosecutions against individuals.We have had a Conservative Club officer personally fined several thousand pounds for showing foreign football matches earlier this year. I look forward to having a conclusion to this case early next year although it is possible that any decision will be appealed by the respective party.
The Equalities Act
The Equalities Act was finally passed and was introduced into legislation in October. Whilst this Act potentially has some employment ramifications (it has been suggested that disabilities will be much harder to use as a reason not to employ someone) there is no case law on this subject yet so quite how it will be interpreted remains to be seen. However, it is clear that Clubs can no longer continue to have Ladies elected to Associate Memberships. Clubs can choose to be single sex if they so desire but for all other Clubs ladies will have to be elected to full membership. All ACC Clubs should now have undertaken this change if they were to be affected by this legislation, if your Club still operates associate membership policies then please contact the ACC as a matter of urgency.
Licensing Act Consultation
During the summer there was a consultation undertaken with regards to a potential review of the Licensing Act by the Home Office. I have submitted a response vigorously defending the current rights that Clubs enjoy to hold Members events and hold events under a Temporary Event Notice. I have argued strongly against several of the proposals contained within this consultation document. One such proposal was that of tightening up of the procedure governing the use of Temporary Event Notices. Whilst the reasoning was to prevent festivals and rave organisers misusing these by apportioning parts of the same field so that multiple TEN’s could be used per year, the wording that was used was ambiguous and could be misinterpreted. I expect to hear more information on the outcome of the review next year although I understand that across the industry the response was unified against some of the proposals which would increase red tape for small businesses and, particularly in Clubs, toughen up on the Temporary Event Notice
Linneweber/Rank VAT Case
As mentioned in the November magazine, Clubs which submitted appeals based on this case have had their appeals granted and HMRC is aiming to make all payments by March 2011. Once the refund has been received I also recommend that Clubs then make a further appeal for the interest which should have accrued on the appealed amount. These payments are being made on the basis that HMRC will not win when its appeal is heard although there is still a possibility that should HMRC win this money would have to be repaid. Commentators suggest that it is unlikely that HMRC will be successful in its appeal.
This case was originally raised as an issue in this magazine as far back as 2006 and I have provided
updates to it frequently throughout the years. It is gratifying to see the positive result and the benefit for
all Clubs which heeded my advice and submitted the appeal.
Category B3A Machines
This issue is covered in this month’s magazine, in short another victory for Clubs and it is reassuring to know that HMRC will not be pursuing any sort of retrospective taxation on these machines. Indeed,
HMRC will not be applying VAT on these machines now and there is a strong possibility that Clubs which have already paid VAT in these machines can now reclaim this VAT. Please see the article in this month’s magazine for further information.