The UK gambling market is probably one of the most strictly regulated ones on a global scale. A number of regulatory reforms have been introduced over the past two years and the ones focused on taxation matters were among the changes least welcomed by operators. What were the most-talked-of taxation amendments and how these affected the industry – quick answers to these questions could be found in the paragraphs below.
Point of Consumption Tax
The Point of Consumption Tax was probably the most broadly discussed and controversial measure to have been introduced recently. It came into effect on December 1st, 2014, and now, two years later, gambling operators are still in pursuit of efficacious ways to cope with its ill effects and implications.
Generally speaking, the Point of Consumption Tax requires all offshore iGaming operators with operations in the UK to pay a 15% tax on their gross profits generated from services offered to UK-based players. In comparison, those same operators had previously been charged on a point-of-supply basis. Said otherwise, their taxes had been determined based on the jurisdiction they had been located in.
The newly introduced tax regime came as a big blow both to smaller companies and to ones with years and years of activity in the local market. Operators have remained consistent in their complaints about the way the duty has affected their businesses over the past two years. Quite expectedly, their profits were hit considerably, making the Point of Consumption Tax one of the most broadly despised regulatory measures in regard to online gambling.
Machine Games Duty
Still in shock from the Point of Consumption Tax, gambling operators endured another heavy taxation-related blow. In March 2015, an increase in the Machine Games Duty rates came into effect and created another loud and bitter controversy between gambling industry representatives and government officials.
In a nutshell, gambling companies with gaming machine operations in the UK must pay said duty on machine games if the prizes they offer are in cash and exceed the lowest possible cost to play on such machines.
HM Revenue & Customs has introduced three duty rates based on the types of machines, the cost to play on them, and the prizes they pay out. Type 1 machines are charged with a 5% rate. These accept bets of £0.2 or less and pay out up to £10. Type 2 machines accept bets of between £0.21 and £5 and pay out £11 or more. Operators are taxed at 20% for those. All other types of machines, ones the cost to play on which exceeds £5, are rated at 25%. What is more, operators offering more than one type of gaming machines are imposed the rate of the highest rated games.
Reforms in Freeplays Tax Treatment
It was only last week when the Government announced that it was changing the way freeplays offered by remote gambling operators were treated in terms of taxation. In general, freeplays include different types of promotions and incentives companies provide players with to engage their attention for a longer time.
Prior to the latest reforms introduced, such incentives were calculated as if having no value for a given operator’s profit. The amended regulations are set to take effect from August 2017. From that point on, all freeplays “staked by a customer will” will have value in the calculation of an operator’s profits.
As a result from the revisions, gambling companies will have to pay significantly increased taxes. The UK Government has projected that the additional amount of £45 million will be contributed to the country’s coffers during the first full year after the introduction of the reforms. The amount is expected to continue rising in the years to come. Thus, £345 million is projected to be generated in taxes from freeplays in the period between 2017-2021.
Implications for Operators
Tax changes are traditionally the least favorite regulatory amendments from operators’ point of view as such taxes usually hit their profits in a severe manner. The Point of Consumption Tax and the increased Machine Games Duty rates were indeed fundamental regulatory reforms that not only harmed UK-facing companies’ profitability but also changed the UK and the global gambling landscape in ways that had probably not been expected.
In the months after their coming into effect, three pairs of UK gambling powerhouses announced multi-billion-pound merger and acquisition deals. And consolidation indeed seems to be the most effective means for enduring heavy burdens like taxes and other regulatory issues, in addition to the overall highly competitive UK market.
With the new treatment of freeplays coming into force next summer, it will not be a big surprise to see more operators partnering with counterparts to improve their state and secure stable profits from their operations.
