Part of the reason why the United Kingdom is such an attractive place to bet is that the bettors themselves don’t have to pay tax on their winnings. That’s not because the British government is immensely generous and doesn’t want to claim any tax money from betting as an industry, however. Instead, it’s because the betting companies have to pay the tax in a number of different ways, meaning the government gets its cut whilst punters enjoy the benefits.
The most obvious tax paid by betting companies is the Point Of Consumption Tax, which currently stands at 21%. Then there are other, less obvious taxes such as VAT and business rates. Bookmakers that have real world premises also have to pay around 15% on those, meaning that a good chunk of the money earned by bookies is paid into the system. They try to find ways to limit the damage, of course, but they still have to pay a good amount of tax, as we’ll explore further here.
Point Of Consumption Tax
The first place to start is with the Point Of Consumption Tax, which is a tax paid on bets wagered at the location that the bets are placed. The tax was introduced on the 1st of December 2014, coming about as part of new regulation introduced by Her Majesty’s Revenue & Customs. The reason for the Remote Gaming Duty, to give it its proper title, is that many companies moved their operations abroad in order to pay less tax, depriving the British government of that income.
The issue was that those companies were still offering their services to customers in the United Kingdom, which became even more prevalent thanks to the explosion of online gambling. The PoC Tax said that 15% duty had to be paid on all bets placed by UK-based customers, regardless of where in the world the online operated was located. Suddenly the companies that had moved operations to the likes of Malta and Gibraltar could no longer escape paying UK tax.
The Point Of Consumption Tax, or Remote Gaming Duty, saw companies paying 15% tax on the gross profits that they made through online betting. It was aimed at creating a more level playing field between the companies based in the United Kingdom and those based abroad when it came to paying taxes. It shifted the amount paid from the 1% on gross profit and 1% on turnover of fixed odds bets, both of which had previously been capped at £425,000.
In the budget of 2018 the government announced that the Remote Gaming Duty would be increasing from 15% to 21%. In essence, the increase in the RGD was decided upon in order to cover the shortfall that was expected to come in thanks to the maximum state reduction put in place on Fixed Odds Betting Terminals. As a result, the new 21% Point Of Consumption Tax was effective from the moment that FOBT stakes were reduced.
This new rate has been in place since April 2019, with the government making a u-turn over its initial plans to hold off on reducing the FOBT maximum stake until October 2019. It means that betting companies with an online presence have to pay 21% tax on the gross profits that they make through said online activities of British customers. Because of the nature of how the tax is structured, it means that all companies must pay that if they offer their services to bettors in the UK.
Land-Based Taxes
The Point Of Consumption Tax, which replaced the Point Of Supply Tax that came before it, is specifically for online companies. Whilst online gambling makes up a huge chunk of the market, it would be untrue to suggest that it’s the only part of the industry that gets taxed. When it comes to land-based operators, the amount of tax that they pay will differ depending on the size of the operation. The amount of money earned by said company dictates the tax amount paid.
Lottery operators, for example, have to pay 12% of all stake money in tax thanks to the Lottery Duty. Sports betting, meanwhile, is taxed at 15%. Slots can be taxed anything from 5% to 25% depending on how much is earned through slot machines, whilst profits from the likes of blackjack, poker and roulette is taxed at between 15% and 50%. The success of the games is largely what dictates how much the profits will be taxed at.
In reality, there are three different taxes that companies either based in the United Kingdom or offering their services to UK-based customers. Depending on the services offered, companies will have to pay one or more of the following:
- General Betting Duty
- Pool Betting Duty
- Remote Gaming Duty
Obviously we’ve already covered the Remote Gaming Duty, with the General Betting Duty being payable on profits earned from the likes of bets on horse and dog racing, spread bets, bets placed on an enhance and so on. Pool Betting Duty, as the name suggests, is payable on profits from bets on non-fixed odds wagers that are not on horse and dog racing. Horse and dog pool bet profits have to pay the General Betting Duty instead. Here’s how the rates work:
- Pools Betting Duty is paid at 15%
- General Betting Duty is paid at 15% for fixed odds and totalisator bets
- GBD is 3% for financial spread bets
- GBD is 10% for other spread bets
- GBD is 15% on commission charge for exchange betting
Finally, any ‘game of chance’ is exempt from paying value added tax. This includes the likes of Spot The Ball competitions, which are popular but do not require tax to be paid on profits. The game of chance ruling applies to any game of pure chance and any game that sees a combination of chance of skill, with whist being the example provided by the government. There are a number of other gambling options that are also exempt from paying Value Added Tax.