JACKPOT! Online gambling bonanza set to reel in DOUBLE expected tax take at £600m – and even free spins must incur a levy
ONLINE gambling companies are facing a £100million tax hike under plans by the Government to tax ‘free spins’ and bonuses, even as the industry pays double what was expected in new levies on offshore operators.
The resulting financial strain is seen as being behind moves by gaming firms to consolidate in recent months.
Online bingo or Las Vegas-style slot machine games regularly offer free spins or bonuses to customers as a reward for signing up and playing. They are seen as an essential way to attract new customers and keep existing ones.
Even though these perks are free to customers, Revenue & Customs plans to force operators to pay tax on them to bring them into line with bonuses in sports betting that are already subject to tax. The move, expected to come into force next autumn, is set to cost the industry more than £100million a year.
‘The operators are not delighted about it,’ said an industry insider. ‘It’s been hard to take. They’ve only just got used to paying Remote Gaming Duty, so this looks to them like a hidden tax rise, and it could have a disproportionate effect on the smaller operators.’
Another said: ‘It’s often hard to stand out among competitors as many of them offer the same games. Bonuses are a way for companies to do that. If giving away free bets is costing money, then they are going to have to rethink whether it is worth doing. However, it’s such a competitive market that they might just have to absorb the extra cost.’
With between 200 and 300 online gaming companies operating in the UK, the tax could increase consolidation in an industry that is already scrambling to mitigate the effects of Remote Gaming Duty, also known as the Point of Consumption tax.
Nearly every bookmaker in the UK has set up an offshore division for phone and internet gambling in the past 20 years as they could then pay little or no tax. But a change in the law in 2014 meant any operator who took bets from UK-based customers had to be licensed by the Gambling Commission and were liable for Remote Gaming Duty at 15 per cent of gross profits.
At the time, the Government said the move would raise £300million a year, but The Mail on Sunday can reveal that the actual figure is understood to be double that.
Clive Hawkswood, chief executive of the Remote Gambling Association, told The Mail on Sunday that while no official figures had been released by the Government, he believed the industry was paying £600million in the duty.
‘Since the tax was introduced, the industry has been growing by about 10 per cent a year, which has contributed to the higher tax receipts,’ he said. One smaller online bookmaker admitted the duty was costing it £10 million a year, meaning the larger players are paying much more. William Hill paid £54million in Remote Gaming Duty in 2015.
Betting companies must also pay General Betting Duty and Machine Games Duty, adding to pressure to consolidate over the past year.
The Ladbrokes and Gala Coral merger earlier this month was just the latest in a long line of tie-ups. Paddy Power and Betfair, GVC and Bwin, Stan James and Unibet have also merged.
William Hill fought off a takeover bid from 888 and Rank Group, but rumours still persist about a potential bid from private equity firm CVC, owner of Skybet.
William Hill itself has also tried and failed to merge with 888 – which had also tried to take over Bwin.
Meanwhile, the Government is consulting on maximum levels of stakes and prizes. This could lead to a slashing of the maximum stake allowed on 34,700 FOBTs – Fixed Odds Betting Terminals – which rake in £1.7billion a year for the industry.
With half of bookmakers’ profits coming from FOBTs, a change in stake size could be catastrophic for the industry (see above).
The effect of the financial pressure is already being felt: there have been redundancies at several of the major bookmaking chains, including William Hill and Rank Group.
William Hill has still to complete a merger of its own and has yet to secure itself a permanent chief executive.
‘Companies are trying to mitigate the effects of the extra costs and that’s what is driving the merger mania,’ said a source at a major betting company. ‘Taxes and regulation are really hurting us.’