VAT: K E Entertainments Ltd | KPMG | UK
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VAT: K E Entertainments Ltd – First-tier Tribunal Decision

VAT: K E Entertainments Ltd

The First-tier Tribunal allows the taxpayer’s appeal concluding that there was a Regulation 38 adjustment based on the Carlton Clubs case.


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This case considers the same issue that the FTT previously considered in Carlton Clubs (Carlton). The claim has its origins in HMRC’s change in policy on participation and session fees paid by cash bingo players. The details of the specific change are quite niche. Essentially, income that had been taxable payment for participation became outside the scope (VAT free) prize money. The important point is that under HMRC’s revised policy, bingo operators had over paid VAT and Brief 7/07 invited claims. Carlton’s Fleming claim for 1973 to 1996 was paid and a three year claim was paid. (The cap for claims was three years at that time and is now four years). These claims treated the overpayments as s80 claims (VAT paid to HMRC that was not VAT due).

The dispute was for the middle period where Carlton issued an internal credit and made a Regulation 38 adjustment on its return, which HMRC subsequently assessed. Similarly the current K E case is for the middle period from 1996 to 2004. There is no time limit for Regulation 38 adjustments (so they can be made more than four years after the original supply that is being adjusted was made) though if they are not made at the proper time that is then an error. HMRC did not appeal the decision in Carlton. Therefore that decision was only binding on Carlton and HMRC. This current case became a lead case and HMRC acknowledged that there were other claims stood behind it.

This current FTT clearly acknowledged the similarity of the case with Carlton, describing the two cases as virtually identical and it reproduced the whole Carlton decision as an appendix. Agreeing with Carlton, the current FTT:

  • Concluded that where an apportionment required to work out the taxable element within a larger amount changes, there is a change in consideration within Article 73 or a price reduction under Article 90 (EU VAT law);
  • Noted the aim of Regulation 38 is to provide a mechanism for such price adjustments;
  • Concluded that the price of the taxable supply was reduced after the supply happened, even though no payment reflecting that reduction was made back to customers; and
  • Could not envisage what more the taxpayer could have done to comply with the requirement to produce evidence of the decrease in consideration, in line with Regulations 24 and 38.

Accordingly, the FTT agreed with Carlton that the recalculation of the taxable element of the fees fell within Regulation 38 and the taxpayer’s appeal was allowed. To access the decision click here.

HMRC, in order to succeed here, had to argue that it considered that Carlton was wrongly decided even though it had not appealed Carlton. This was always going to be a tough argument for HMRC to win and the taxpayer victory here is not unexpected.

Although this is a niche area this case confirms Carlton was correctly decided and also confirms that there can be a Regulation 38 adjustment that is not time barred, even where the VAT adjustment is wholly internal and the customer is not refunded or credited with anything. The customers had of course not had any input tax credit in respect of the amounts paid by them to K E to play cash bingo.


For further information please contact :

Karen Killington 

Steve Powell

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