Tax and the UK – Are Operators Being Treated Fairly?

Posted by Harry Kane on Wednesday, January 17, 2018

At first glance, everything appears to be rosy in the online casino market. With a gross gambling yield (GGY) in excess of £4.5 billion and an overall market share of 33%, this sector has continued to enjoy exponential growth since 2007.

If we delve a little deeper, there are potential issues in an otherwise idyllic marketplace. Operators are bearing the brunt of increasingly stringent regulatory measures, for example, while the government is also introducing new taxes that continue to squeeze profit margins in the industry.

In this post, we’ll look at how this is likely to affect the market as a whole, and ask whether or not operators are being treated fairly?

What Tax Liabilities are Online Operators Facing?

On some levels, the drive to increase the tax burden facing operators makes perfect sense. After all, the online gambling industry has become a huge growth market, with its relatively high yield helping it to stand out as a key revenue stream in the eyes of the government. So, just as authorities have historically targeted lucrative sectors such as the tobacco and alcohol industries when applying duties, they are now turning their attentions to online gambling in the UK.

The first sign of this came in the winter of 2014, when the HRMC and the Conservative Government joined forces to implement a so-called point-of-consumption (POC) tax. This legislation, which came into force on December 1st of 2014, stipulated that operators must pay a remote gaming duty of 15% on all bets made by UK customers. This was applied regardless of where online operators were based, preventing firms from reducing their tax burden by basing themselves in locations such as Malta or Gibraltar.

Then came the recent Finance Bill of 2017, which was finally passed into UK law on August 1st last year and increased the burden being placed on operators. More specifically, this bill targeted the deployment of excessive promotions and no-deposit bonuses, with a view to capping these offers and ensuring that casino brands take steps to safeguard the needs of vulnerable gamblers.

The precise terms of the finance bill are clear, as any free plays or no-deposit wagers are now subject to taxation in line with the General Betting Duty. So, operators are now required to pay a 15% duty on all discounted or free bets, in addition to their existing liabilities. Similarly, the new bill has also amended the definition of ‘prizes’ offered by operators, to prevent them from equating the value of free plays with the potential returns (which up until recently had been common practice).

From an official government and regulator perspective, this new levy is being portrayed as little more than an attempt to protect the interests of consumers (particularly those who may prove to be vulnerable gamblers). By closing the longstanding loophole that has enabled discounted wagers and free bets to thrive for the last decade, however, the authorities are also clearly determined to increase the tax revenue generated through online gambling and reinvest this into the wider economy.

Are Operators Being Treated Fairly?

This is part of a wider trend within the gambling industry, of course, with regulators increasingly keen on targeting offline casinos and bookmakers. This is reflected by the government’s new stance on fixed-odds betting terminals (FOBTs), which remain a prominent feature in bricks-and-mortar casinos across the UK. At present, gamblers are allowed to wager a maximum of £300 per minute through FOBTs, with a maximum threshold of £100 per bet.

As a result, the Department for Digital, Culture, Media and Sport (DCMS) minister Tracey Crouch has suggested that the government will look to slash the maximum bet in 2018, with a figure of between £2 and £50 currently being mooted. This will hit the profitability of betting brands hard, with a number of prominent bookmakers suggesting that such a move could ultimately cause shops to close nationwide.

Altogether, these proposed tax and regulatory measures will have a cumulative impact on the UK gambling industry, particularly in terms of the bottom line profit achieved by operators.

The question that remains, of course, is whether operators are being treated fairly by regulators and the national government? From the perspective of online casino brands, there’s no doubt that the introduction of a new consumption tax and a 15% duty on free bets will diminish their profitability, particularly given that firms are already required to pay standard corporation tax rates.

At best, increasing the tax burden of operators seems like an arbitrary move, and one that is designed to generate additional profit rather than safeguard gamblers. In this respect, it seems largely unfair, as while some industries will always be subject to variable tax rates it is imperative that authorities operate transparently and with clear justification at all times. Of course, it may be argued that applying a duty to free bets will encourage operators to reign in their promotional offers, but this could also be achieved through new regulatory measures imposed by the UKGC.

When it comes to offline bookmakers and FOBTs, the issue is slightly more complex. After all, the desire to reduce maximum betting thresholds has been discussed for a while now, while this move clearly has the players’ best, long-term interests at heart. Still, regulators will need to give careful consideration to how heavily they discount the maximum wager, as a reduction from £100 to just £2 would be too significant for some bookmakers to absorb.

Even if regulators look to reduce the maximum wager incrementally over time, bookmakers will still need to restructure their revenue streams in order to remain competitive. Still, it would be hard to call this move unfair, particularly as the current betting thresholds allow for irresponsible gambling practices.

The Last Word

Despite this, online operators are entitled to feel hard done by after the release of the Finance Bill last year. The latest tax levy certainly seems like an arbitrary and cynical move by authorities, while it could see no-deposit bonuses withdrawn and any additional operational costs transferred to customers in the months ahead.

Similarly, the heavy tax burden placed on operators could ultimately see them buckle, forcing them to consider the idea of relocating outside of the UK. This would deal a seismic blow to the UK economy, so regulators must strive hard to ensure that they treat operators fairly and act solely with the interests of customers in mind.