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Bookies brace for Budget tax increase

It's thought Chancellor Philip Hammond will announce plans to increase remote gaming duty taxes at the upcoming Budget
October 25, 2018

Regulatory changes have made it a difficult year to be in the gambling business, with the latest threat coming from a potential tax hike in the UK. It’s been reported that chancellor Philip Hammond will announce plans to increase the remote gaming duty paid by offshore gambling companies from 15 per cent on gross gambling yield to between 20 per cent and 25 per cent in the Budget on 29 October. This would effectively raise an estimated £1bn for the Treasury over the next five years.

The increase could fill the void created by cutting the maximum stake allowed on fixed-odds betting terminals (FOBTs). Earlier this year the Department for Culture, Media and Sport announced the permitted stake would be cut from £100 per spin to £2 – the extreme end of previously indicated options. According to a Financial Times report, the machines currently contribute around £400m in taxes each year, on about £1.8bn-worth of revenue. But while companies like Ladbrokes owner GVC (GVC) and William Hill (WMH) base some of their online operations in Gibraltar, they also run high-street shops, and will arguably be hit by both decisions.

While such a tax rise will no doubt irritate gambling companies already affected by the FOBT stake cut, it will not be entirely unexpected. At the time of the FOBT announcement it was widely speculated that the government would look for ways to compensate for the subsequent loss of tax revenue. Analysts at Goodbody have already included a 5 per cent increase in remote gaming duty to 20 per cent from 1 January 2020 – the point at which they also expect the £2 stake to come into effect. Analysts believe this will be the consensus adjustment, although the changes could be implemented at an earlier date – perhaps as soon as the start of the next tax year.

The proactive approach taken by analysts didn't prevent shares in UK-listed gambling companies from falling ahead of the Budget either. Paddy Power Betfair (PPB) said that, based on its first-half gaming revenues, it expects each percentage point increase in remote gaming duty to result in an additional £2.5m of duty payable on an annual basis. Meanwhile, GVC said applying remote gaming duty to gaming free-bets from October last year contributed to a 16 per cent increase in cost of goods sold during the first half.