Understanding the bonus tax

TAGs: Bojoko, bonus tax, Guest Contributor, UK

This is a guest contribution by Joonas Karhu, Chief Business Officer at Bojoko. If you would like to submit a contribution please contact Bill Beatty for submission details. Thank you. 

Understanding the bonus taxOne year after it was introduced, the freeplay tax is still causing confusion for casino affiliate managers. Joonas Karhu, Chief Business Officer at Bojoko explains what it is, how it is applied, and how you can easily calculate your liabilities.

One of the most powerful acquisition and retention tools available to online casino operators and affiliates is bonuses. And despite their use coming under increasing regulatory scrutiny, and a move away from promotions that come with wagering requirements by some brands, there remains a large number of players that are incentivised by freeplays.

But on 1st August 2017, major changes to UK gambling law came into force that meant operators had to pay tax on free games, introductory offers and matched deposits. Since then, there has been a lot of uncertainty, confusion and misinformation among affiliate managers and casino representatives about the tax and how it is applied.

This, in turn, means that casino brands are not using bonuses to their full potential, mainly because they are unsure what tax liabilities they will face when offering them to players. The impact this is having is significant, and is putting the brakes on their own player acquisition activities as well as those of the affiliate partners they work with.

This need not be the case.

How the freeplay tax is applied:

The UK government considers freeplays to include free games, introductory offers and matched deposits. Operators only pay tax on the customer’s first use of any bonus offer. If your offer requires players to gamble a minimum value or wager a set number of times before they can withdraw their winnings, you only have to include the value of the initial stake.

This means you don’t pay tax on required play-throughs from freeplays, winnings that can’t be withdrawn and winnings that can only be re-wagered. Similarly, if the game is completely free to enter then you won’t need to pay any Remote Gaming Duty because the player has not had to make a stake to play.

It is worth noting that if you offer a game where the only prize is a freeplay you won’t be taxed when that freeplay is used by the customer, but you will pay tax on the initial stake they made in order to play.

How to calculate freeplay tax:

The tax you are required to pay on freeplays will be added to the tax you are required to pay on cash stakes as part of your Remote Gaming Duty liability. To be clear, tax on freeplays only applies to stakes on their first use.

You can deduct winnings from freeplays when they are actually paid out or made available to the customer to withdraw and then add these winnings to the other winnings you pay out to create a running total of your total liability for freeplays and cash wagers. Just remember you can’t deduct winnings from:

· Freeplays that have to be re-wagered
· Freeplays that can’t be freely withdrawn by the player
· Games that were free for players to enter

To calculate the tax that will be applied to freeplays:

· Add up the total value that has been staked
· Add up the total amount that can be withdrawn as winnings
· Deduct the winnings from the value of the stakes

The resulting amount is what you pay tax on, which is currently being levied at 15%.

An example of a bonus and how the tax is applied:

The player makes a £100 deposit and is rewarded with 10 freespins on a specific game.

The freespins stakes amount is £1 x 10, so a total of £10.

The player stakes £50 and wins £30.

The total freespins stake is £10 and from that he wins a further £30, but it can only be withdrawn after the wagering requirement has been met.

The player then stakes the £30 to play through the wagering requirement, after which he wins £15 which can be withdrawn as the wagering requirement has been met.

The operator would then calculate the tax liability by doing the following calculation:

Cash stake: £50

Cash win: £30

Freespins wins (withdrawable) £15

Cash stake minus withdrawable winnings = £5

Plus the £10 freespins = a gross gaming yield of £15

The operator would then pay 15% tax on GGY, which in this example would equal £2.25.

In the case of freeplays, tax doesn’t have to be taxing. By understanding where it is applied and how to calculate liability, online casinos can continue to offer generous promotions that engage new players and retain those already loyal to their brand. It can be a big win for casinos as well as the affiliates that promote them.

About the author:

Joonas Karhu serves as the Chief Business Officer at Joonas has 11 years of experience in the gambling industry and holds an MBA.


views and opinions expressed are those of the author and do not necessarily reflect those of