30 Mar

New UK Gambling Act and Point Of Consumption Tax

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The UK gambling industry is set to face a big setback in terms of revenue and the tax which they have to pay. A lot of changes were introduced to the old Gambling Act 2005. The one change which is of interest is the Point Of Consumption tax which was introduced. Effective from December 1st, 2014, the new gambling act has mandated that the UK licensed gambling operators are taxed a flat 15% on gross profits at the point of consumption.

In a nutshell, the offshore gambling companies will have to pay the 15% tax on the gross profits, to the UK treasury in return for servicing the UK players.

UK Gambling scenario before the new taxation laws

The UK government has until now been liberal in its approach to the gambling industry. Almost the world’s entire gambling setup is primarily UK targeted with the European market coming second. This multibillion dollar industry is the bone of contention for the UK government.

The top gambling setups all hold UK licenses from the UK approved white listed territories. The major ones are the Gibraltar, Malta, Isle of Mann, Alderney and Antigua, which were tax heaven for the gambling operators.

The previous law collected tax from the country in which the gambling operators were registered. This was considerably lower (as much as 1% in Gibraltar, Isle of Man) compared to the high tax percentage collected. This greatly benefitted the gambling establishments with their profits running into millions of dollars.

The UK government felt that they should be taxed for providing services to the UK customers. According to economic secretary to the Treasury, the changes would “ensure that remote gambling operators who have UK customers make a fair contribution to the public finances.”

UK Gambling scenario after the new laws

The speculation about this new act costing the gambling industry a setback of up £300m, and adding it to the UK’s tax coffers was long in the writing. It came into effect from Dec 1st 2014. It also mandates that the government regulate the online gambling at the point of consumption (i.e. the UK customers) rather than the point of supply (tax from the countries with offshore registered operators)

As per this new act, the gambling operators will have a pay the 15% Point of Consumption tax. In layman’s terms, the government will collect this tax based on the gross profits that they generate from the UK customers, despite where those gambling companies are located or registered.

The new act also states that all the gambling companies should obtain a UK license to provide services to the UK players. It is an offence for the unlicensed gambling operators to provide gambling services to any of the UK players.

New UK Gambling Act – What it means to all

  • From a gambling operators view, it is a punishable offence for not paying the required tax. Failure to pay this tax will result in the Gambling licenses to be cancelled or revoked. This will affect all those companies which will service the UK players.
  • The profit margin of the individual gambling accompanies will take a big hit. It may result in some of the companies jumping ship and moving out of the country.
  • The smaller gambling operators are the ones who are hard hit by this new taxation law. They might focus more on the European market base, to cover their losses. Leaving the field open for an even larger chunk of the UK players.
  • In relation to the above point, the big and established companies may absorb this new tax, by focussing more on getting new UK customer base. They might spend more on the marketing strategies and less on the operating costs.
  • Some of the operators are limiting the services offered to the UK players. They may allow casino games while limiting sports betting.
  • Enforcing of this law and penalising the offenders is still a gray area. In the absence of any clear enforcement of this law, it may result in the emergence of a casino gray market for the UK players. They might move over to the unlicensed and unregulated casinos, to overcome the limited services offered.

The actual impact of the new UK gambling act and the POC tax is yet to be fully understood. As of now, the Gibraltar Betting and Gaming Association (GBGA) is challenging this act, stating that it is unfavourable to the gambling sector. It has sought to make the implementation of this act as invalid.

The verdict is still out there. It is unlikely that the gambling operators will pass on this tax to the players. But, they might see a decrease in the number of offers, mobile casino no deposit bonus and VIP promotions benefits.

The new Gambling Act 2014 has received mixed reviews. While trying to rein in the online gambling scenario with security, legality and taxes, it is trying to make the offshore operators accountable. As of now, you can’t measure the actual impact. The full picture can be seen only down the year.