Remote Betting & Gaming Duty – the worst kind of stealth tax?

Last week, the Treasury launched a consultation proposing a single remote gambling duty, to be known as Remote Betting & Gaming Duty (“RBGD”).  This idea, first mooted under the Conservative Government, sounds simple and, therefore, attractive.  But is it actually a good idea?  And who, if anyone, would it benefit – punters? the gambling industry? the Government?  We explore these questions below.

Why so many gambling taxes?

In the UK, we currently have seven separate gambling excise duties.  If you include Horserace Betting Levy, seven becomes eight.  Why so many?  Surely reducing the number is a good idea?  

There are many reasons for the myriad different duties but, in essence, these distill to two: (i) history and (ii) the differences between different types of gambling.  

Looking only at the three duties that are proposed to be consolidated into the single Remote Betting & Gaming Duty (or, more accurately, those parts of those duties – since, as explained below, these three duties will not neatly and entirely be subsumed into the new tax), the dividing lines between pool betting duty (“PBD”), general betting duty (“GBD”) and remote gaming duty(“RGD”) reflect these two principal reasons.

• PBD, which was introduced in the 1920s, applies to pool betting.  The rules have been amended over time and they now (in broad terms) cover betting that is neither fixed odds betting, nor pool betting on horses or dogs.  In practice, the major activity covered by PBD is football pools betting and, due to the decline in popularity of the football pools over multiple decades, the tax-take from PBD is now very modest relative to GBD and RGD.  Like GBD (and unlike RGD) PBD covers both remote pool bets and those made “on premises”.  Like RGD and most (but not all) of GBD, PBD is levied on a point of consumption (“POC”) basis.  Unlike GBD and RGD, there are no “free bet / freeplay” provisions applying to PBD.
   
• GBD was introduced in the 1960s and has evolved to apply to a myriad mixed bag of different types of betting.  GBD covers remote and on-premises bets (but not on-course bets), is also levied on a POC basis and has “free bet” provisions (which are markedly different to the “freeplay” rules under RGD – discussed below).  GBD has many component elements and depending on how you want to categorise them, it is arguably six (yes, 6!) different taxes. These are as follows:
  • a tax on fixed odds bets (levied on a POC basis, predominantly on the operator’s gross profit at a rate of 15%);
     
  • a tax on horse and dog pool bets (levied on a POC basis, predominantly on the operator’s pooled profit at a rate of 15%);
     
  • a tax on tripartite arrangements, divided into two:
    • “bet-broker” arrangements (basically tripartite arrangements involving an intermediary or agent, which fall outside of the betting exchange sub-category), where the rules create a fiction of two separate bets; and
    • “betting exchange” provisions (introduced in 2002 specifically for Betfair’s exchange model), where the exchange’s commission is subject to duty (rather than the operator’s gross profit), again on a POC basis and at a rate of 15%;
       
  • spread bets of a financial nature, levied on a place of supply (“POS”) basis on the operator’s gross profit, but at 3%; and
     
  • spread bets of a non-financial nature (e.g. sports, political elections, etc.), levied on a POS basis on the operator’s gross profit, but at 10%.
     
• RGD was introduced most recently, in 2007.  This coincided with the Gambling Act 2005 coming into force, which made remote gaming from the UK lawful, hence the need for this new gambling tax (note that, at this time, RGD was levied on a POS basis).  After its introduction, RGD was modified quite materially in 2014 (moving to a POC basis) and then again in 2017 (when provisions levying RGD on freeplays were introduced).  RGD covers only remote gaming (“bricks and mortar” casinos are subject to a different duty, called “gaming duty”), is levied on a POC basis and is currently levied at 21% on operator profits. 

Pick’n’mix?

To say that these three taxes cover a mixed bag is something of an understatement.  As can be seen from the above:

• only RGD is a truly remote gambling tax, as the other two cover both remote and non-remote;
   
• GBD includes sub-categories of tax levied on a POC and a POS basis and at three different rates (15%, 10% and 3%), with the relevant taxable profits being computed in different ways for different sub-categories;
   
• the rate of RGD is levied at a different rate again, 21%;
   
• GBD spans different regulatory regimes, since spread bets (of both kinds) fall within the bailiwick of the UK’s FCA, rather than the GB Gambling Commission; and
   
• “free bets” are subject to GBD but not PBD.  Equivalent “free plays” are subject to RGD.  However, the relieving provisions (considered below) are so fundamentally different that the GBD free bet provisions and the RGD freeplay provisions do not bear comparison.

Why create RBGD?

Given that gambling taxes have, since their first introduction, been divided by type of gambling, what is the reason behind the proposed change?  Why move from distinguishing gambling taxes by type of gambling activity to a position where the tax regime levies duty based on whether the player is remote or on  premises? 

If the suggestion is to reduce the number of gambling taxes, no-one should pretend that “three will become one”.  Given that PBD and GBD cover both remote and on premises betting, these two taxes (maybe as one combined betting tax) will, after the introduction of RBGD, need to continue to cover non-remote betting (given the suggestion that RBGD will be an exclusively remote gambling tax). 

Given the various sub-categories of GBD (and the different type of gambling activity at which each sub-category is aimed), it seems very unlikely these can be usefully condensed into a single duty.

As such, any suggestion of simplicity might seem something of a smokescreen.  Of course (as the consultation document points out), there may be some operators which have to file separate returns for GBD, PBD and RGD each quarter, which is, unarguably, administratively cumbersome (albeit in practice, of those who file GBD and RGD returns, we question how many also file PBD returns).  If this is the aim, is the “prize” of one return per quarter (rather than two or three) worth (i) the risk of the rules not being fit for purpose and/or (ii) the (very material) cost of moving to a new regime (i.e. the cost of understanding the new rules, changing systems and (potentially) redesigning betting products – before, of course, we get to the thorny issue of the rate)?

What are the chances of RBGD rules being simple or simpler (or, indeed, fit for purpose)?

Given that readers of this update probably like a flutter, what are the odds of one set of new rules covering all the above working well? 

Rather than me just asking a rhetorical question and leaving it hanging, let us look at some more history, together with some evidence of past HM Treasury practice. 

Why do we have gambling duties anyway?

Part of the answer to this question lies in VAT, and the reasons why gambling is VAT exempt. 

In the case of United Utilities plc, the ECJ recognized that VAT is "ill-suited" to certain forms of gambling.  This is due to the unique nature of gambling transactions, particularly because there is no direct link between the payment made by the gambler and a corresponding supply, and because outcomes depend on chance rather than on a traditional exchange of goods or services. 

In the earlier case of Glawe Spiel, the ECJ acknowledged the complexity of applying VAT to certain types of gambling transaction because:

• there is no clear "buyer" and "seller" in the traditional VAT sense
   
• the element of chance makes the value exchange unpredictable and non-linear
   
• the operator’s income is not the total amount received, but rather what remains after paying out winnings

Given these challenges (assisted by the many legal challenges by various operators to those situations where VAT was previously applied to gambling transactions), UK VAT no longer applies to any gambling transactions.  Instead, we have gambling excise duties which are “targeted” at gambling.  These targeted duties seek (and have always sought) to deal with gambling’s idiosyncrasies. 

However, not only are gambling transactions different from “traditional exchanges of goods and services”, they are also very different from each other.  This is why we have all seven gambling duties: RGD, gaming duty (bricks and mortar casinos), PBD, GBD, bingo duty (bricks and mortar bingo), lottery duty (National Lottery) and machines games duty (gambling machines).

Given these differences why (after c.100 years of UK gambling tax history) would it now be a good idea to merge different activities together under a single tax? 

Taxing remote gambling incentives

That there are idiosyncrasies in different types of gambling is highlighted when one considers the different ways that remote betting and gaming operators currently offer incentives. 

Whilst a free bet (e.g. on a horse) or a free play (e.g. on virtual casino) seem superficially similar, the way in which the incentives have developed across betting and gaming have resulted in a material divergence between the two.  In the world of betting, operators can play around with odds and the relative chances of winning.  As such, offering longer odds on a bet to incentivise a customer makes sense.  However, in contrast, changinging the odds on a casino game rarely makes sense.  Whilst you can have more than one zero in a game of virtual roulette (the additional zero typically distinguishing American roulette from the European game, lengthening the odds accordingly), in most cases, changinging the odds would make the target game so materially different as to be unattractive to punter or operator.  Consequently, different techniques are adopted in the online gaming industry, such as “play through” or “re-wager” requirements.  Looked at this mathematically, one option changes the fundamentals of a single transaction (an “odds boost” on a bet), whereas the other maintains the mathematical fundamentals and requires, instead, a repeat number of notional wins to be achieved in order to achieve a real (cash) win (a re-wagering requirement on virtual casino games).   

For these reasons, the free bet provisions in GBD and the free play provisions in RGD are materially different.  If the new amalgamated RBGD is to work as it should, those differences will need to remain.   So, why make the change?

HM Treasury – past performance? 

It is worth remembering that the Treasury’s first attempt at designing the RGD freeplay rules was almost a disaster.  Had the industry not pulled together to explain (in response to the 2016 Consultation) how re-wagering worked - this being the catalyst for the introduction of the re-wagering relief provisions which, in effect, now result in only the “first use” of a freeplay being dutiable – the initial draft of the rules could, had it been applied strictly, have bankrupted operators. 

Another example of HMRC and the Treasury not having a good understanding of the industry can be seen in HMRC’s recent attempts, throughout much of 2023 and 2024, to seek to apply RGD on what we dubbed “in-game spins”, i.e. one or more spins of a wheel that take place during the course of a single game playing out, where such spins do not represent the start of a new game.  HMRC sought to assess a very large cohort of UK-facing gaming operators to RGD as though they were dutiable, using entirely theoretical and made-up amounts, before the BGC persuaded them that their position was entirely outside both the letter of, and the policy objectives behind, the RGD rules.

Given the comment in paragraphs 4.12 of the consultation doc (“The government is also aware that the rules about what constitutes the first use of a freeplay have been seen by some as an opportunity to reduce their tax liability with increasingly contrived arrangements”), HMT’s previous first attempts at re-writing gambling duty legislation and HMRC’s misguided views of how the existing provisions should work, should we be imbued with confidence that they will make a good fist of a wholesale re-write of the rules this time around?

It’s the economy, stupid!

So, “Why, why, why?”, we hear you ask.  Well, of course you already know. 

Are HMT and HMRC going to reduce the rate of RGD below 21% at a time when national economic data is dire, and, so we are told, taxes need to be raised?  That seems extremely unlikely and, consequently, the prospect of a 21% single rate of tax (at a minimum) would seem to be on the horizon.

Whilst we sincerely hope that HMT’s plans do not extend to the spread betting operators (given that moving their rates from 3% and 10% respectively to 21% would appear potentially ruinous), increasing the rate for bookmakers and pool operators from 15% to 21% (or more) represents a massive increase in the current rate by (at least) 40%.  This will not be good for jobs in the bookmaking industry or the growth agenda generally.  It will be particularly bad for horseracing.  

Many online gambling businesses based overseas have CRM, tech, back-office, finance, legal etc. in the UK and will already be having to manage the impact of the hikes in National Insurance, that went live last month.  HMRC has targeted many online gambling businesses that have UK operations, by examining their transfer pricing arrangements.  As such, many “overseas” operators already pay significant amounts of UK corporation tax in addition to UK employment taxes and UK gambling duties.

In short, this proposed change will be widely viewed as (another) tax increase, just badly disguised. On top of the tax costs will be additional costs incurred in responding to the consultation, designing and changing systems, possibly re-designing gambling products and generally getting to grips with yet another change of rules for the sector.  These costs should not be underestimated.

Whilst Autumn 2027 (the currently proposed implementation date) may seem a long way off, responding to the consultation will be vital.  As we have seen in the past, well-considered and well-choreographed responses to consultations on UK gambling duties can avoid bear-traps, possibly unforeseen by HMT and HMRC.  As such, CMS encourages all of its gambling clients to do so.