How the new tax system affects the UK gaming industry

  • Business | 22nd Mar, 2012 | London, UK | 2012 Budget – Video
  • Comprehensive changes introduced to UK gambling tax hit the industry Wednesday as Chancellor George Osborne delivered his third budget. A new ‘Machine Games Duty’ sets a standard 20 percent tax rate and online gambling tax will shift from the point of supply to the ‘point of consumption’.

    UK gambling taxBoth significant, the new regime takes effect 1st Jan 2013 and radically changes the current gambling tax system brought in by the previous government. Speculation already indicates the amusement sector alone is poised to take a £50 million annual hit and smaller operators could be forced out of business.

    A new 20 percent ‘Machine Games Duty’ which replaces the current 17 percent Amusement Machine Licence Duty and VAT has riled UK bookmakers, pub landlords and arcade owners. Not only will this impact existing profits, operators will face reduced levels of business and a deterrent in the leisure and amusement sector.

    The Association of British Bookmakers, stated, “We are disappointed that the government has introduced an unsustainable rate of machine games duty and has not adopted a revenue neutral rate for the whole machine gaming sector…It will put 2,600 betting shops and 11,000 jobs at risk.”

    A representative for trade body BACTA, added, “The end for many amusement arcades is nigh. The rates that the Minister had proposed for his new tax on arcades are simply too high and will result in another, cruel wave of closures.”

    The online gaming industry is likely to be the most affected by the new regime.

    A 15 percent ‘point of consumption’ tax on gross profits has been imposed, in an attempt to bring online operations on-shore. Gaming operators now require a license from the UK Gambling Commission to operate in the country, forcing tax to be paid.

    Waves of online companies re-located offshore following the 2007 budget that set a 15 percent tax rate for all UK-based operators. Still prevalent in the UK, the likes of Ladbrokes and William Hill greatly benefited from tax avoidance and pumped profits back into developing technology for the industry.

    The move was not unexpected however, as the Department for Culture, Media and Sport launched a review of the existing gambling act last year and the tourist board proposed online bets were regulated at point of consumption. But it will mean big changes for the industry.

    “90 percent of online gambling consumed by our citizens is now supplied from outside the UK,” said George Osborne, “This is clearly not fair and not a sensible way to support jobs in Britain.”

    Gaming operators having to re-locate back to the UK would consequently impact companies revenues, corporation tax, marketing spend, and disrupt existing operations in the online industry.

    Companies that opted to remain in the UK, namely Coral and Bet365, have been struggling with increased competition from offshore websites and welcome the new regime.

    While implications to move operations on-shore would keep taxable revenues in the UK and protect consumers, it could develop an adverse effect. Fears are amounting that many UK players would move to unregulated sites, while smaller operators would no longer be able to compete and be forced to close.

    Ralph Topping, CEO of William Hill, remarked, “Money will always find a way out. More people will go overseas or to fly-by-night, unregulated sites where the consumer is not protected. I hope the government sees the sense in this.”

    More Information
    HM Treasury: 2012 Budget
    Department for Culture, Media and Sport – Website: www.Culture.gov.uk

    Contact reporter Michael Robinson at mrobinson@innovategaming.com
    or +44 (0) 208 144 2578. Follow @innovate_gaming on Twitter.