The structure of tax within the betting industry has changed quite considerably over the last couple of decades. The changes have come about to be more streamlined and also more in line with the fact that the majority of bets are now placed online.
One of the areas that many get confused on is the rate of tax that is applied to bookmakers and the rate of tax that is applied to punters. In the UK, it is worth noting that punters don’t need to pay any tax on winnings, of which we delve into deeper later in this article.
What has been a huge part of the shift of gambling taxes are the loopholes that many companies have been able to jump through for many years. A lot of this came from UK-based companies moving offshore, but this has been countered by the government in the form of point of consumption taxes.
Are Punters Taxed?
As a punter in the UK, you pay no direct tax to the government at all. Any winnings that you take are yours to keep.
If you are a professional bettor, then you also do not need to pay taxes on your winnings. You still need to file tax returns however, but as long as you state the income that has been paid as a result of betting, then you won’t be taxed on these amounts.
The Current Tax Situation
The biggest changes in how bookmakers are taxed came about around the turn of the millennium. This was at a time where the whole industry was starting to change. Many companies were seeing huge growth with things like telephone betting and online betting, and whilst the high street was still king, the processes were starting to shift.
Loopholes
As a result, many bookmakers saw fit to start to move their businesses offshore in an attempt to try and pay less tax. BetVictor, formerly Victor Chandler, were probably the highest profile bookmaker to take the initial plunge in 1998. They decided to move their whole operation to Gibraltar which allowed them to pay very little tax given that it’s a tax haven, but still provide and accept players within the UK.
The move saw several offer betting firms move to the likes of Gibraltar and the Isle of Man, where taxes were much less than in the UK, saving hundreds of millions of pounds in payable taxes. However, the Chancellor at the time, Gordon Brown, was keen to put a stop to this and started to legislate changes in the way that gambling within the UK would be taxed.
In 2001, the betting levy was removed for the punter and in turn, change to a 15% blanket tax for all betting companies. Obviously for punters this turned out to be great, but for bookmakers, the numbers started to rocket up.
Whilst the removal of the betting levy was great for punters, the blanket 15% tax didn’t really solve the issue of bookmakers moving offshore to reduce the amount that they paid overall. The UK government still felt as if they were out of pocket.
For example, in Gibraltar, a company would be charged just 1% with a cap of £400,000. On a gross net win of £10,000,000 (a fairly conservative margin for most major bookies) this would mean that they paid just £100,000 in tax. In the UK on the same margin, this amount would be £1.5mil, a staggeringly higher amount.
As you can see, this still provided an issue as for the government as they weren’t getting as much as they should be from these major companies. The loophole saw a plethora of major bookmakers follow BetVictor’s route, saving them hundreds of millions (as a group) in taxes paid.
Point of Consumption Tax
So, the change to stop this came about in 2014. The change was simply that the tax would change from a “point of supply” to a “point of consumption”. Basically, instead of the bookmakers being taxed on where they were based, they would instead be charged on returns taken from residents within the UK at the rate of 15%.
The loopholes had reduced, and it was widely advertised that if bookmakers weren’t able to prove these figures and honestly, then they would into be granted a gambling license within the UK. Given that these companies are massively reliant on punters from within the UK, it was time for them to start paying what they owed.
2019: Remote Gaming Tax Increases to 21%
The previous section is all based on the emergence of online betting and the reshaping of how people are betting. In 2018 it was decided that these rules be amended again, specifically due to the increase in remote gambling.
To put it simply, in October 2019 the rate of tax for remote gambling on “games of chance” will increase from 15% up to 21%. These games include the likes of blackjack, roulette, slots, table games etc.
The 6% increase will be significant, and whilst it will make more for the UK government, it has been designed to try and limit the current influx in these games within the gambling industry. As of late, problem gambling and gambling addictions have been on the rise, with games of change being at the heart of this.
The government is hopeful that the increase in tax will put off gambling companies from advertising them as much as they were in order to deter people playing these games.
The reality of whether this will work remains to be seen, but one that you can almost guarantee as a punter is that the odds and return to player percentages will decrease to cover the losses for the tax increase.
You see, back in 2001 when the first of the modern-day changes to the gambling industry started to filter in, they abolished tax that the punters had to pay. Initially this was set out at 6.75% and the bookmaker would charge the punter around 9% to cover these costs and take a little for themselves. You could choose to pay the tax on the stake of the winnings at the time of placing your bet.
The fact is that when these taxes were removed from the punter and handed back to the bookmaker, all they did was adjust the margins of the odds that they had on offer. For example, a coin toss would always be 2.00 or even money as true odds. The bookmaker might have offered 1.95 to give them a slight margin. The new rate of tax simply meant that this bet would now be adjusted to 1.90 to cover the extra tax.
Whilst this is a simplified example, this is how many bookmakers will have worked. So, whilst they will have been charged, it’s the punter that actually feels as much as a backlash in terms of the odd on offer.
The same will occur when the new Remote Gaming duty increases in October 2019. What we will see is where a “Return to Player” for an online slot game used to be 96% it might reduce to say, 90%, covering the 6% increase. It may not seem like a huge amount for singular games, but over the course of the whole casino or bookmaker, the numbers start to stack up.
In fact, some experts are saying that this could be a good thing for a lot of gambling companies as it allows them to work through their whole catalogue and create even bigger margins. If you were a casual player of online slots, it’s likely you’d never play enough to see a difference between a 96% and 90% payout game anyway.
A Quick History of Gambling Tax
The first gambling tax laws were passed in 1892 and this was when the Tote was originally set up. At this time, off-course bookmakers and high street betting shops were illegal at the time. But, there were plenty that existed and worked within the black-market.
Ironically, it was the success of the black market that allowed the government to coin on to the fact that there was actually a massive market for high street betting. In 1960 they finally stopped trying to fight the industry and instead started to regulate it.
The first shops opened their doors in 1961 and the rate of tax at the time was 6.75%. But the bookmakers didn’t want to pay this. So, instead they passed this down to the punter, charging them 9% per bet or 9% on their winnings, a choice they made as they put their bets on.
Whilst this may not seem all that fair, the same principles still carry over today. The punter isn’t charged any tax, but they still pay them in theory based on the margins that the bookmakers are able to lock in. As stated above, the increase in tax for remote gaming will just see these margins increase further.
How Is Tax Likely to Change in the Future?
Well, changes in tax aren’t all that common. We’ve had three changes in the last 20 years and none prior to that from 1961 to 2001. However, the betting landscape is starting to evolve in quite a dramatic way.
There are calls on the limit of advertising within the industry and also the fact that problem gambling (addictions) are on the rise are all really bad PR for the industry. The astonishing figures that some of the bigger companies bring in mean that the only way they can really influence them to make change is to hit them with larger tax bills.
This does have an affect with the smaller bookmakers in the industry who will have smaller margins. It could send a lot of these and off-shore bookmakers to either withdraw from the UK market or to cease trading altogether. The latter would likely suit the UK government as it means that there are less businesses to govern which means it saves them money and can work closer with the larger firms.
You would have to assume that tax will continue to increase. 15% isn’t a huge amount, especially as the likes of alcohol companies are taxed at 20%. Unfortunately, the punter will feel this as much as the betting company as they reduce margins to cover these additional costs.