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London Clubs Management - non-negotiable chips and promotional vouchers not part of casino's "banker's profits" for the purpose of calculating gaming duty

11 January 2021. Published by Alexis Armitage, Senior Associate

In HMRC v London Clubs Management Ltd [2020] UKSC 49, the Supreme Court held that where casinos provide gamblers with non-negotiable chips and/or promotional vouchers (Non-negs) which could be used for gaming but not encashed or exchanged for goods or services, they do not form part of the casino's "banker's profits" for the purpose of calculating its liability to gaming duty.


London Clubs Management Ltd (LCM), which runs a chain of casinos, provided Non-negs to selected customers free of charge to encourage them to gamble in its casinos. 

The amount of gaming duty payable is calculated by reference to the gross gaming yield (GGY) which, in simple terms, is the difference between the value of bets placed less the value of winnings paid out. Since their introduction in 2008, LCM included the 'face value' of all Non-negs played by its customers in the calculation of the GGY, for the purpose of calculating its liability to gaming duty under section 11(8)(b), Finance Act 1997 (FA 1997). Following a review of that approach, LCM considered that method of accounting was incorrect and that, as a result, it had over-declared the gaming duty payable by it.  

In October 2012, LCM wrote to HMRC and requested repayment of gaming duty which it said had been overpaid in the period from 1 October 2008 to 30 September 2012. The request was made under section 137A, Customs and Excise Management Act 1979. HMRC rejected LCM's claim for repayment and LCM appealed to the First-tier Tribunal (FTT). 

LCM was unsuccessful before the FTT, who agreed with HMRC that the correct way to calculate the GGY was to include the face value of the Non-negs in the calculation of the GGY. The FTT accepted HMRC's argument that the value in money or money’s worth of the Non-negs was their monetary face value on the basis that the face value would be used to calculate any winnings. On appeal, the Upper Tribunal (UT) allowed LCM's appeal and overturned the FTT’s decision. It held that the FTT had failed to have proper regard to the requirement that the value of the stakes staked must be the value of those stakes in money or money’s worth. In the UT’s view, Non-negs did not represent any money paid or deposited by the customer, nor did they have any value in money’s worth by reason of being redeemable for cash or for goods or services. HMRC's appeal to the Court of Appeal was dismissed. In the view of the Court of Appeal, a Non-neg was not a “stake staked” for the purpose of section 11(10)(a), FA 1997 and even if a Non-neg was a stake staked, that stake had no value in “money or money’s worth”. 

HMRC appealed to the Supreme Court.

Supreme Court judgment 

The appeal was dismissed. 

The Supreme Court was required to consider the following three main issues:

(i)  whether, in calculating banker’s profits, Non-negs were “stakes” for the purposes of section 11(10)(a), FA 1997;

(ii)  what “value, in money or money’s worth”, if any, Non-negs had for the purpose of section 11(10)(a); and

(iii)  what “value”, if any, should be given to Non-negs for the purpose of section 11(10)(b).

In respect of issues (i) and (ii), the Supreme Court concluded that Non-negs were not stakes within the meaning of section 11(10)(a), nor did they have any real-world value to the casino. Non-negs were very different to normal cash chips which represented money deposited by the customer, or money which they had won or been given to encourage them to bet. Non-negs did not represent money to which the customer was entitled and, unlike cash chips, they could not be encashed or exchanged for goods or services. Further, when a customer placed a bet using a Non-neg, no money was appropriated to the bet. If the customer lost, no right to money passed to the casino. The casino was therefore effectively giving the customer a 'free bet', by allowing the customer to bet with the casino’s own money. 

With regard to issue (iii), the Supreme Court concluded that Non-negs were not used in place of money as whole, or partial, payment for benefits of a specified kind obtained from the casino and did not therefore satisfy section 20(3)(a), Betting and Gaming Duties Act 1981 (BGDA), dealing with the valuation of prizes. In the view of the Court, HMRC was also wrong to argue that Non-negs did not satisfy section 20(4)(b), BGDA, which provided that a prize represented by a voucher was to be treated as having no value if its use as described in section 20(3)(a), BGDA, was subject to a specified restriction, condition or limitation, making the value of the voucher to the recipient significantly less than its face value.


The Supreme Court's decision in this case will no doubt be welcomed by other UK casinos which provide Non-negs to their customers, as they should also now be entitled to gaming duty refunds from HMRC where the value of Non-negs have been similarly included by them in the calculation of their GGY.

This decision may also encourage casino operators to offer Non-negs in place of other types of rewards and inducements.

A copy of the judgment can be found here.

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