The UK Treasury “has a way to go” to understand the nuances and complexities of the gambling industry, CMS Co-head of Tax Stephen Hignett has told iGB ahead of Wednesday’s budget.
In its pre-budget preparations, which included a Select Committee meeting with industry stakeholders and think-tank representatives, the Treasury has raised concerns around parts of the UK sector being based offshore in hubs like Gibraltar and Malta.
During its meeting in October, the committee probed Betting & Gaming Council CEO Grainne Hurst and Tax Committee Chair Stephen Hodgson on why many UK-facing gambling firms maintained an offshore presence.
The committee’s suggestion was that companies were based offshore to avoid corporation tax in the UK. But Hignett explains the reasoning is much more nuanced.
“There’s a history as to why different parts of the industry are offshore and some are onshore, which needs to be understood to sort of realise how we got here,” says Hignett.
“They’re there for reasons that are well explained,” he adds. Hignett notes that operators have flitted between having offshore and onshore bases for years, to ensure they can compete on equal footing.
Dynamic regulatory environment
Additionally, in the UK remote gambling was illegal until the 2005 Gambling Act came into force in 2007. During this period mobile and online betting was increasing in popularity and operators remained or returned offshore to leverage this opportunity across Europe.
“If you’re an operator in 2007 the question is ‘why would you come onshore voluntarily, when all of your competitors remain offshore?’ You’re volunteering to pay a whole load of taxes that’s just going to put you at a massive competitive disadvantage,” Hignett tells iGB.
“I can tell you about some of the musings of the Court of Appeal, in particular income tax cases where they look at gambling companies that have gone offshore and said, ‘we kind of understand why you went offshore, because everyone else had gone offshore, and therefore you would be the only people paying duty in the UK when the rules were like that’. So they were pretty sympathetic of that.”
But the Treasury has made some progress in better understanding the sector, he suggests. “You can see that in the differences between the Treasury Select Report and the rather blunt [gambling tax] consultation earlier in the year. But I think they’ve got a way to go to really understand those differences,” Hignett says.
A long way since the consultation
The consultation was launched in April by the Treasury, requesting stakeholder feedback on the current three-rate, profit-based tax system for operators. The initial report hinted at consolidating the three rates into one single rate across all verticals.
But stakeholders largely rejected this idea, as it would raise betting duty from 15% to 21%, in line with Remote Gaming Duty. This could hugely impact, and possibly decimate, the retail betting and horse racing industries.
Various other policies were then suggested by think-tanks, including increasing remote gaming duty to 50%, and machine games duty from 20%. But we won’t know which the government has settled on until Wednesday’s budget session.
“If anyone has the ability to sort of shoulder an increase in tax, it’s probably not various people within the general betting duty camp, you know, the high street shops, particularly bookmakers, who are taking bets on horse racing, where they’ve got to pay the levy as well,” Hignett reflects on the initial consultation.
“The industry reacted badly to this consultation, thinking it wasn’t a very good idea, because I think it was based on a false premise, which was essentially, because various types of gambling can be consumed online they must be sufficiently similar, and therefore we can merge them all together.”
Taxes on high-risk verticals in the UK
In its report following the Select Committee meeting the Treasury has advised the government to consider increasing the tax for high-risk verticals, like online casino.
“I think they are on a journey and I think they’ve probably got a way to go, because what we’re looking at is a very complex ecosystem,” Hignett says of the committee’s meeting and subsequent findings.
“The Treasury select interview process was really interesting because it was meant to be all about gambling tax policy,” he adds. “And most of the questions that were being thrown, particularly of the BGC, were more regulatory-related questions and around gambling creating social ills. I think everyone accepts that. That’s why it’s regulated, to try and make sure we can control that.”
When could a new gambling tax policy come into force?
On the timeline for a potential gambling tax hike, Hignett says the chancellor has a choice on when to introduce a new policy that is announced during the budget.
“She will either bring them into effect from midnight of Budget Day or from the beginning of the next financial year. If it’s a transactional tax, like capital gains tax or a tax on transactions like stamp duties, rate rises often take effect from midnight.
“For the types of gambling duty that we have been talking about, rate rises often take effect from the start of the next financial year (this is what happened when RGD was increased from 15% to 21%, with effect from 1 April 2019). As regards rule changes (rather than just rate changes), these will typically come into effect on a date prescribed in the Finance Act that enacts those rule changes.”
He says a date for operators to formally change their systems could be included in the budget speech.
New gambling tax policy could take effect from next financial year, based on previous gaming duty rises, Hignett suggests.