Proposed Tax Changes In The UK
The recent introduction into the UK Parliament of the Offshore Gambling (Licensing) Bill should not have come as a surprise to operators. Additionally, it should not have come as a surprise that the Bill was introduced by the MP for West Suffolk, Matthew Hancock, of whom Newmarket, the centre of horseracing in the UK, forms part of his constituency. After all, the Bill would, if the right honourable Mr Hancock is to believed, go a long way to securing some sorely needed additional income for the horseracing industry. However, it could be argued that the Illuminati of the racing industry are financially buoyant enough for Tattersalls and racehorse owner P.J.D Pottinger to donate six figure sums to Hancock’s constituency association. There is no smoke and mirrors in this regard with Mr Hancock, a brief glance at his declaration of interests indicate a broad relationship with British horseracing interests including the generous gift of annual badges of entry and car parking at Newmarket racecourse, courtesy of the management, and honorary membership of the Club Rooms courtesy of Jockey Club Estates.
These influential supporters, could arguably, be expected to be the real source behind the purpose of this Bill. This impression could be reinforced by the comments regarding the Bill’s reading from some within the online industry. One expert stated that Hancock had, “successfully managed to persuade a handful of MPs to vote for his Bill”. This is a dangerous underestimate of the Bill’s support within Parliament. The Bill undoubtedly has the taciturn support of the coalition government and operators should prepare for the worst.
What, therefore, is the worst? The worst case scenario for operators, in my belief, is a 15% duty on Gross Gaming Yield (GGY). The online gambling industry should expect little in the way of concessions from a government struggling under the yoke of austerity. I myself remember gaming duty when it was at 40% for the land based casino industry in the UK. It was unimaginable that such heavy duty could ever be increased, that was until it hit 50% after a New Labour budget. The New Labour resistance to land based appeals for a discretionary tax rate for proposed “Super” casinos is another example of monolithic fiscal attitudes towards gambling revenue. However, the coalition government are unlikely to raise duty above 15%, if that is any consolation.
There are more pressing concerns for the off shore industry. Recently, it has been rumoured, a white listed licensee received a huge VAT bill from Her Majesty’s Revenue and Customs (HMRC). HMRC stated that the operator was licensed in name only, basing the lion’s share of its operation in the UK. Therefore, the operator was not VAT exempt. Other operators may expect similar bills as it is unlikely that HMRC will ignore other operations structured in a similar manner. If an operation is liable to VAT, as is the case with Isle of Man licensees, little may change.
If we return to the proposed Gambling Bill put forward by the right honourable Matthew Hancock MP what effect will it have on the white listed jurisdictions and their licensees? A fair number of operations licensed in the Isle of Man are non UK facing and therefore would be faced with relatively minor duty charges. Other jurisdictions will be less secure. The Chief Minister of Gibraltar, Fabian Picardo, informed the Gibraltar Chronicle that the proposed bill and the inevitable taxation which would arise signalled, “issues on the horizon for Gibraltar”. Understandably Gibraltarians are worried about the impact on jobs due to the egambling sector’s Gibraltar based operations being significant employers within the jurisdiction. The Alderney Gambling Control Commission may also run into difficulties. The majority of their licensees appear, for the most part, to be licensed solely in the jurisdiction with little physical footprint. The Commission has published a report by KPMG on, Key Individual Concept and the risk of Central Management and Control in the UK. Ominously, one of the report’s conclusions was, “The KIC used by AGCC may assist HMRC to identify individuals that are UK resident. If HMRC can demonstrate that these key individuals in the UK can override or usurp decisions affecting the direction of the company it can shift the CMC of the company to the UK. The company may then become taxable in the UK at a higher rate of corporation tax than Alderney”.
Operators will still have time to reorganise and lobby for changes within the proposed Bill which may ease their expected suffering. However, there is little to stop the Bill succeeding and a prolonged fight may be futile. Whether large operators move away into the “grey” market is an option. One thing is certain; the government in the UK has allowed its gaze to settle on the white listed jurisdictions. There is likely to be little escape for those operations accepting bets in the UK, and this is simply a reflection of other EU member states intent and recent actions.
Seamus Murphy has had 29 years hands on experience at traditional and online gaming including extensive experience of numerous jurisdictions. Seamus has land based casino experience in the UK, Eastern Europe and the Caribbean. On line experience includes the handling of egambling licence submission to gambling jurisdictions (White Listed) and compliance. An experienced researcher Seamus has authored market reports, competitor analysis and the provision of Change Control, Player Protection and other key compliance documentation for operators and state regulators. He returned to University as a part-time student receiving a BA (Hons) in History including a dissertation on the enforcement of the 1968 Gaming Act and a PhD, awarded without revision, on the development and regulation of the British Casino Industry 1939-2007.
Seamus Murphy has submitted the following article to CalvinAyre.com. To have your voice heard please submit article and op-ed ideas to Bill Beatty.