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New UK Online Gaming Tax Implications

December 7th, 2012 Author:

New UK Online Gaming Tax ImplicationsSince the Gambling Act of 2005 was introduced in the UK, all online gambling operators have been required to obtain a license and pay 15% tax on UK wagers. Unfortunately for the UK government, the overall effect was to compel most of the affected businesses to exit the country and set up in such offshore locations as Gibraltar, Alderney and the Isle of Man, where they were then able to offer their services without a UK licence, while also avoiding the 15% tax on profits.

However, a new bill amending the 2005 Gambling Act is set to close that particular loophole such that even offshore operations offering their service in the UK will be subject to the same licensing and tax requirements as domestic online operators.

The bill is expected to be passed in early 2013 and could see companies such as PokerStars and PartyPoker shifting their UK operations to ‘co.uk’ domains, so as to subject just the UK part of their revenue to the local gaming tax. The system is then expected to go live in early 2014 with minimal disruption to UK players.

However, online operators will have to shoulder the burden of increased costs related to UK licensing, as well as gambling duty currently at 15%, and corporation tax at 23%. This increased cost will likely in turn be passed down to players and could lead to a situation such as in the Spanish, French and Italian markets where online poker sites have raised the rake they charge. However, these countries have segregated player pools, unlike the UK, which may instead opt to simply reduce its player bonuses and rewards. It is estimated these total rewards may be reduced by around 10%.

The good news for UK players, though, is that they will still enjoy tax exemption on their gambling winnings unlike countries such as Sweden which recently started demanding back taxes from its online poker players who had played on poker rooms located outside the European Economic Area.

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