How Much Tax Do UK iGaming Brands Contribute to the Economy?

Posted by Harry Kane on Sunday, May 16, 2021

With the advent of the Gaming Act of 2005, the UK created a progressive regulatory framework that allowed for the mass expansion of what was then a burgeoning iGaming marketplace.

In the 15 years since, iGaming in the UK has evolved into a $5.7 billion industry that grew by an impressive 8.1% in the year ending March 31st, 2020.

Although this has obviously benefited the leading casino operators primarily, the industry has also generated significant amounts in tax revenues for the UK Treasury. But exactly how much tax revenue does the market generate, and could this be threatened by increased regulatory oversight?

iGaming Brands and Taxation – What Needs to be Paid?

As a starting point, licensed UK casino brands will have to pay a 19% basic rate of corporation tax, with this forecast to rise to 25% by the year 2023 according to Chancellor Rishi Sunak’s latest budget.

While this change will only affect approximately the 10% of UK businesses that bank more than £50,000 per annum in profits, this number should include a number of Britain’s most established and profitable iGaming brands.

In addition to this, a 2014 amendment to the 2005 Gambling Act proposed an additional 15% tax levy at the point of consumption, with this applicable to all gross profits for UK licensed brands. This compelled even off-shore companies to pay tax on profits earned from UK-based customers, with this income heading straight into the Treasury purse.

Those of you who follow the market will know that this levy increased to 21% in 2019, with then Chancellor Philip Hammond having introduced as a result of the controversial fixed-odds betting terminal (FOBT) wagering cap.

This not only cost land-based bookmakers on these shores hundreds and thousands of pounds and triggered numerous high street closures and job losses, but it also helped the government to recoup the subsequent loss of revenue to the UK Treasury.

This levy is now 1 percentage point higher than the corresponding consumption tax of 20% in Spain, creating a scenario where the taxation landscape in becoming increasingly competitive outside of the UK and in central Europe.

How Much Tax do Operators Pay Cumulatively?

According to a recent report commissioned by the trade body of the UK gambling sector, UK operators pay a cumulative amount of £3.2 billion to the Treasury every single year.

In addition to contributing a whopping £3.2 billion annually to the Exchequer, the gambling industry in the UK also provided a total of £7.7 billion gross value to the national economy as recently as 2019.

This also accounts for the numerous jobs supported by the gambling industry as a whole, with more than 119,000 individuals employed in the UK in this space.

Perhaps even more importantly, it’s estimated that 70% of all industry workers are aged under 35, with this indicative of a young and motivated workforce that can underpin sustained market growth.

There’s a clear takeaway here; with UK iGaming operators playing a deceptively important role in driving wider economic growth and Treasury spending. This contribution is also all too easy to underestimate, particularly in an environment where most of the conversation is focused on societal, gambling-related harm.

Could the Increased Taxation be Counter-Productive in the iGaming Space?

There’s no doubt that all aspects of the gambling industry are facing a pronounced and sustained crackdown in the UK, while the introduction of a £2 FOBT cap shows that the government isn’t afraid to implement stringent regulations at the expense of taxation revenues.

However, the fact that a higher tax burden was subsequently placed on iGaming operators highlights just how dependent the UK economy is on the industry, with a 6% Remote Gaming Duty (RGD) hike capable of raking in huge sums of money.

The question that remains, of course, is whether the government can really countenance introducing higher taxes for iGaming brands while simultaneously rolling out more stringent regulatory measures?

Michael Dugher, the CEO of the Betting and Gaming Council (BGC), certainly thinks this balance is simply too delicate to strike. In fact, he had advised regulators and legislators to avoid imposing stringent measures that impact on the profitability of UK brands, particularly in the wake of the coronavirus pandemic.

The reason for this is simple; as it would automatically reduce the revenues and profitability of brands, subsequently reducing their tax and wider economic contributions at a time when huge pressure is being placed on public finances.

Similarly, we live in a time of significant economic certainty, and reducing the contributions from an established and high growth could prove incredibly counterproductive for both jobs and the national economic performance.

Of course, some of the recent regulatory proposals have been particularly impactful, such as a potential £2 cap on online slots wagering. Although this wouldn’t necessarily impact on profitability (as the size of payouts would decline by a similar rate), it would slash revenues considerably and reduce the amount payable at the point of consumption.

Another proposal has discussed the complete prohibition of gambling advertising, across channels including television and websites. This would also impact directly on revenues and potentially reduce the amount wagered on a daily basis, further reducing consumption tax levies and the contribution made to the Treasury.

The Last Word

If we extend this logic to a natural conclusion, we can potentially see a scenario where iGaming brands in the UK are taxed in a way that’s disproportionate to their annual revenues and bottom-line profitability.

This could cause some to consider relocating overseas, with jurisdictions such as Malta and the semi-autonomous enclave of Ceuta in Spain now offering huge tax incentives for international brands to base themselves there.

If this were to be the case, then the UK economy would potentially lose considerably more in terms of taxation and gross added value each year, especially if operators chose to remove themselves from the local market completely. This is why a balanced approach is required by legislators, who must focus on optimising growth while maintaining a fair approach to tax levies.