Online Gambling Tax Hikes: What They Mean for Punters

Tax CalculatorYou may have heard or read about Jeremy Hunt’s autumn Budget this week, which was generally considered to contain a number of ‘wins’ for the average Joe or Jane – always a good idea when you’re less than 12 months away from a General Election.

National Insurance cuts, pension rises and frozen alcohol duties have all been met warmly by the electorate, although other tax increases – both in this autumn budget and those that have gone before – mean that the actual outcome is likely to be nothing more than a score draw.

Other parts of the autumn budget pass by with barely a footnote in the wider media, but for those that they directly involve clearly plenty is to be made.

Which brings us to a proposed increase in the amount of tax to be paid by online gambling operators, which could have serious ramifications for the sector but also for UK horse racing.

Stealth Tax

The statement is released to the media in what can only be described as a New Testament sized document.

As such, the government also provides some handy bullet points so that journalists aren’t afforded the luxury of independent critique and analysis.

But if you sit down and read the whole thing, often you’ll spot a kernel or two hidden away that can cause alarm.

Under a heading titled ‘Backing British Business’, Hunt writes ream after ream of paragraphs espousing how great the government is, before dropping the occasional bombshell – like a review into online gambling taxation.

He confirms that minister will ‘consult shortly on proposals to bring remote [online] gambling into a single tax, rather than taxing it through a three-tax structure.’ Now, you may not be all that concerned about such things, but if you enjoy a flutter then there could be ramifications from this consultation – more on those shortly.

To help understand the potential pitfalls of the change, there’s currently a three-tiered tax system governing gambling firms in the UK:

  • General betting tax – 15% of revenues
  • Pool betting tax – 15%
  • Remote gaming (online casino etc) tax – 21%

Now, you can probably see where this is heading. The implication is that all betting firms will now be bumped up to the higher 21% rate, which would obviously slash 6% off their annual profitability straight off the bat.

That, in turn, would reduce the amount of money being paid into UK horse racing via the gambling tax levy – and we’re not talking loose change down the back of the sofa here, but instead millions of pounds.

You can understand then why many in the sport are apoplectic, at a time when horse racing is struggling to make ends meet with rising training costs that are causing some big names to walk away from their yards.

When there’s a difficulty in securing finance from traditional sources, many sports have already showcased a penchant for looking elsewhere – be it private equity firms from North America or between gritted teeth deals with cash-rich types in Saudi Arabia.

If this is the direction that horse racing is forced to go in, would it be bad news for the sport or a necessary evil?

Counting the Cost

So if bookmakers face another squeeze on their profit margins, at a time when planned regulatory changes are already sending shockwaves through the sector, how will they make up for the shortfall?

They will almost certainly increase their margins on horse racing and other sports, which will mean punters are getting even worse value in their odds than they were before. As is the case in many industries, tax rises are almost inevitably always passed on to the end consumer.

With punters getting mediocre prices compared to those offered by soft, often unlicensed bookies, will they be tempted into the black market? If the lure of value odds isn’t enough to seduce them, you can be sure that the threat of affordability checks will be the straw that breaks the camel’s back for others.

The upshot of Hunt’s buffet of electorate-friendly tax cuts and benefits increases is that money has to be raised elsewhere – increasing betting duty to 21% annually will generate hundreds of millions, if not billions, of pounds for the Treasury in the long run.

But at what cost? Another kick in the teeth for one of the UK’s oldest sports? And a further degradation in conditions for the average Joe and Jane – those that make their feelings known at the ballot box – that likes to have a flutter on the horses or the football of a weekend.