The UK Treasury has a significant journey ahead to fully grasp the intricacies of the gambling industry, remarked CMS Co-head of Tax Stephen Hignett in anticipation of the upcoming budget announcement. This comment comes amidst the ongoing discussions and evaluations aimed at better regulating and taxing the gambling sector.
In the lead-up to the budget, the Treasury engaged in significant preparatory work, which included a Select Committee meeting with industry stakeholders and think-tank representatives. A key issue raised during these discussions was the offshore presence of many UK gambling firms, particularly in hubs such as Gibraltar and Malta.
During an October meeting, the committee questioned Betting & Gaming Council CEO Grainne Hurst and Tax Committee Chair Stephen Hodgson about the rationale behind the offshore bases of UK-facing gambling companies. The committee speculated that these companies might be offshore to avoid paying UK corporation tax. However, Hignett suggests the reasoning is more complex than mere tax avoidance.
Hignett illuminated the history behind the industry’s offshore and onshore dynamics. He explained that the decision to operate offshore stems from a variety of strategic considerations that must be understood in context. There is a historical precedent for operators shifting between offshore and onshore locations to maintain competitive parity.
Prior to the 2005 Gambling Act, which only came into full effect in 2007, remote gambling was illegal in the UK. With the rise in popularity of mobile and online betting, many operators stayed offshore to capitalize on these expanding markets across Europe. Hignett elaborates, if you were an operator in 2007, staying offshore made sense—why incur additional taxes when competitors were not doing so? This insight echoes sentiments from past legal deliberations where courts have empathized with the industry’s predicament, acknowledging the competitive disadvantage an onshore presence entailed at the time.
Nevertheless, Hignett concedes that the Treasury has made strides in understanding the sector. The differences between the recent Treasury Select Report and the earlier gambling tax consultation hint at this improved comprehension. However, he asserts that there is still a considerable distance to cover.
The consultation launched by the Treasury in April aimed to gather feedback on the existing three-rate, profit-based tax system. A preliminary suggestion was to consolidate these rates into a single rate across all gambling verticals. This proposal faced considerable opposition, as it implied raising the betting duty from 15% to 21%, aligning it with Remote Gaming Duty, which could severely impact the retail betting and horse racing industries.
Following several stakeholder rejections, alternative policies emerged. Think-tanks proposed increasing remote gaming duty to 50% and machine games duty from the current 20%. However, the final decision from the government will only be revealed during the budget session.
Many within the industry believe that imposing higher taxes could disproportionately impact certain sectors, such as high street bookmakers involved in horse racing. Hignett reflects on the consultation process, noting that many viewed it as misguided. The premise that all gambling activities are similar because they can be conducted online was deemed flawed, leading to skepticism about merging disparate gambling tax rates.
The recent Treasury report, following the Select Committee meeting, suggests the government should consider raising taxes on high-risk verticals like online casinos. Hignett describes this as part of a learning process, acknowledging the complex ecosystem the industry represents.
The Treasury’s select interview process inadvertently shifted focus from tax policy to regulatory concerns, particularly about gambling’s social impact, a move Hignett found telling. He observed that while tax policies were the intended focus, much of the conversation revolved around regulatory questions and gambling’s potential social harms, underscoring the need for careful regulation.
As the industry awaits the budget announcement, questions linger about when any new gambling tax policy might be implemented. Hignett outlines the timeline options available to the chancellor: implementing tax changes from midnight on Budget Day or deferring to the start of the next financial year. Historical precedent supports the latter, as seen when Remote Gaming Duty rose from 15% to 21% effective April 1, 2019. Rule changes, as opposed to mere rate adjustments, would typically take effect on a specified date outlined in the Finance Act enacting these changes.
Therefore, any upcoming budget speech could include a timeline for operators to adjust their systems in accordance with new regulations, marking a pivotal moment for the UK gambling industry. As discussions around taxation and regulation continue, the industry remains vigilant, ready to respond to new challenges and opportunities that may arise from government decisions.
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