March 22nd, 2016
Amid the fallout from UK Chancellor George Osborne’s 2016 budget is the news that online casino operators serving the country will be required to pay tax on free bet promotions. This is likely to cause yet more change in a UK gambling industry that's faced with greater tax commitments than ever before.
When announcing his budget, Osborne revealed operators would have to pay the pre-existing 15% General Betting Duty (GBD) on all free or discounted bets from 1st August 2017. Sports betting operators already had to pay the duty when it was introduced on 1st December 2014, but online casinos and bingo sites had been spared the duty.
At the time, the UK’s laws were adjusted so that the government could levy a 15% point of consumption tax (POCT) against offshore operators servicing British residents. By locating in low tax environments like Gibraltar, some operators had avoided paying tax on their UK profits.
Now, however, the Remote Gaming Duty (RGD) has been put in place to ensure online gambling operators pay 15% tax on UK profits. Gibraltar Betting and Gaming Association (GBGA) - an organisation defending the rights of online gaming companies based in the region including operators like 32Red and software suppliers IGT - tried to dispute the duty in the UK at the High Court, but this was rejected. A subsequent appeal is in process with the Court of Justice of the EU, as of July 2015.
Despite learning of Osborne’s latest tax reform, the industry reaction was somewhat positive. Ladbrokes Director of Media David Williams shared the following comments with Bloomberg Business:
"We’re not leaping for joy, but are pleased we haven’t been subjected to yet more regulatory burdens around things like machines."
The machines referenced by Williams are fixed odds betting terminals (FOBTs), which incurred a tax increase from 20% to 25% in 2014. Given that the UK had more than 33,000 FOBTs at the time, this change led to falls in the respective share prices of William Hill (7%) and Ladbrokes (12%) that year.
Alongside FOBTs, some media outlets had reported operators were also afraid of online advertising restrictions, but they were also spared on that front.
Ahead of the midweek budget announcement, Ladbrokes’ shares fell 5% to 114.8p on the Monday, driven by a concern that Osborne would increase the duty on FOBTs. Following the budget, however, Ladbrokes’ share price recovered 8.5% to 124.7p.
There was yet more positive news from the major UK gambling operators, with William Hill recovering from a Monday decline to increase 4.6% to reach 382p following the budget. Another beneficiary was the new merger between Paddy Power and Betfair, which rose by 1.16% to £91.40.
The rising share prices come after a difficult time in which operators have reported falling profits after their first full year with POCT. In February 2016, William Hill cited an £87m tax increase as the reason for profit after tax decreasing by 8% in 2015. Also in February, Ladbrokes revealed its first annual loss in ten years after paying an extra £50m tax in 2015.
Considering the increased tax burden, the UK gambling industry is now a tougher environment for operators, as shown by the 2015 struggles of William Hill and Ladbrokes. As a result, some view Osborne’s free bet tax as a positive outcome from what could have been a more severe budget for gambling operators.
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