UK Treasury Still Grappling with Gambling Sector Intricacies, Says CMS Tax Expert

As the UK gears up for its budget announcement on Wednesday, CMS tax co-leader Stephen Hignett has indicated that the Treasury requires further insight into the gambling industry's multifaceted dynamics.

Drawing parallels to prior adjustments in gaming duties, Hignett anticipates that any forthcoming tax reforms could apply starting from the upcoming fiscal period.

Hignett shared with iGB that the government's fiscal team "still has considerable ground to cover" in grasping the subtleties of the gambling landscape. This comes amid pre-budget consultations, such as a recent Select Committee session involving sector representatives and policy analysts, where questions arose about why segments of the UK gambling operations are headquartered in overseas centers like Gibraltar and Malta.

In that October discussion, lawmakers questioned Betting & Gaming Council chief Grainne Hurst and tax panel head Stephen Hodgson on the persistence of offshore setups for UK-oriented businesses. The panel implied these arrangements might stem from efforts to sidestep UK corporate taxes, but Hignett counters that the motivations are far more layered.

He elaborated: "The offshore-onshore divide in various industry segments has deep historical roots that must be appreciated to comprehend the current setup."

Operators, he explained, have oscillated between domestic and international bases over time to maintain level playing fields. "Their locations are justified by clear, longstanding rationales," Hignett added.

Evolving oversight landscape

A pivotal factor was the pre-2005 era, when remote gambling remained prohibited in the UK until the Gambling Act of 2007 took hold. Amid the surge in mobile and digital wagering, many firms opted to stay or relocate abroad to tap into European opportunities.

Hignett posed a hypothetical for 2007 operators: "Why shift onshore when rivals stayed put overseas? It would mean shouldering extra taxes, handing competitors a stark edge."

He referenced judicial perspectives, including Court of Appeal rulings on income tax disputes, where courts acknowledged the logic: "They recognized that mirroring peers' offshore moves was essential to avoid being the sole UK taxpayers under those rules—showing considerable empathy."

Hignett credits the Treasury with incremental advances in sector comprehension, evident in the gap between an earlier, more simplistic tax consultation and the nuanced Treasury Select Report. "Progress is there, but deeper dives into these variances are needed," he observed.

Evolution from the initial review

Launched in April, the consultation sought input on the existing tiered, profits-oriented taxation for gambling entities. Early signals pointed to unifying the three brackets into a uniform rate for all categories.

Industry voices pushed back forcefully, warning that aligning betting duty at 15% with the 21% Remote Gaming Duty could cripple land-based betting outlets and equine racing sectors.

Subsequent proposals from advisory groups floated hikes like elevating remote gaming duty to 50% or machine games duty to beyond 20%. Clarity awaits the budget reveal.

Reflecting on the consultation's reception, Hignett noted: "Stakeholders viewed it skeptically, rooted in a flawed assumption—that online accessibility equates to operational similarity, justifying a blanket merger."

Elevating levies on riskier segments

Post-meeting analysis from the Select Committee urged the administration to eye tax upticks for elevated-risk areas, such as digital casinos.

Hignett views this as an ongoing learning curve: "The ecosystem is intricate, and they're navigating it step by step."

The inquiry itself veered beyond fiscal policy, he recalled: "Intended for tax matters, it largely delved into oversight issues and societal impacts of gambling—issues acknowledged through regulation to mitigate harms."

Potential rollout timeline for reforms

Regarding implementation, Hignett outlines the chancellor's options for budget-proposed changes: immediate activation at midnight or alignment with the new fiscal year start.

Transactional levies, like capital gains or stamp duties, often snap into place overnight upon rate adjustments. In contrast, gambling duty increments—like the 2019 Remote Gaming Duty jump from 15% to 21%—typically commence April 1.

For structural shifts beyond mere rate tweaks, timelines would be set via the enacting Finance Act. Budget remarks might specify adaptation periods for operators' technical updates.