HM Treasury

Budget

C&E 1

07 March 2001

C&E1 General betting duty abolished

A radical reform of betting duty, which will create the right competitive environment for British-based bookmakers to develop their business domestically and internationally, and give punters a better deal, was announced by the Chancellor today.

Under the new system, the current General Betting Duty of 6.75 per cent on total stakes will be replaced with a 15 per cent tax on bookmakers? gross profits, defined as the difference between the stakes laid with them and the winnings they pay out.

This reformed tax structure makes it possible for bookmakers to absorb the tax and to end the 9 per cent 'deduction' that they currently charge on stakes, which means that punters will pay no tax. It therefore makes it possible for UK bookmakers to develop their domestic and international business from an onshore base, competing from a position of strength in the growing global market for telephone and Internet betting.

As a result of the changes announced today, the largest UK bookmakers have said that they will relocate their offshore operations to the UK. They expect to take advantage of the new duty system, the UK's reputation as a centre of bookmaking integrity and expertise, and the skilled staff and IT infrastructure that is available from a UK base to grow their e-commerce businesses, bringing international business and increased employment opportunities to the UK. The extra domestic and international betting turnover the reform will generate should enable both the betting and racing industries to prosper. Government revenues will share in the gain from increased turnover in the medium term.

Stephen Timms, the Treasury Minister responsible for betting duty, said:

"These reforms will provide a better deal for punters, and help UK bookmakers to compete internationally, while continuing to make their fair contribution to racing and to Government revenues. The reforms are fair to punters, bookmakers, racing and the taxpayer, and will provide the UK with a betting duty system and a competitive environment for bookmakers fit for the 21st century."

Customs and Excise will be working with the bookmaking industry to put the new system in place, and the Government expects it to be introduced no later than

1 January 2002. By that time, the Government also expects that the biggest bookmakers will have brought their offshore operations back to the UK.

DETAILS

Moving to a Gross Profits Tax

In the 1999 Pre-Budget report, the Government announced that it would consider what measures it could introduce to maintain a thriving bookmaking and racing industry in the UK in response to the growth in offshore betting. In Budget 2000, the Government launched a consultation exercise and published a consultation document, ?Our Stake in the Future?, looking at options for modernising the way betting is taxed, including the possibility of introducing a Gross Profits Tax.

Following the consultation the Government announced in the 2000 Pre-Budget report that it believed there was scope to reform the taxation of betting to meet the following specific objectives:

How the Gross Profits Tax will work

Under the current system, a punter placing a bet pays an additional charge of 9 per cent on his stake, representing:

Under the new system the customer should pay no deductions when placing the same bet. The tax charge, horse race levy and administration charges should be absorbed by the bookmaker.

For example:

Old General Betting Duty New Gross Profits Tax
Stake £10.00 £10.00
Deduction £ 0.90 £ 0.00
Return on a 2-1 bet £30.00 £30.00
Net gain to punter £19.10 £20.00

Basing the tax on gross profits allows bookmakers to offset winnings paid out against stakes received. It also recognises the commercial reality that margins are generally tighter on telephone and on-line betting than on cash betting in shops, thus giving a particular boost to these two growth areas.

The revenue cost of this measure is estimated to be £45 million in the first year and £145m in the year after. However, it is expected to generate significant growth in betting turnover in the medium term, probably future revenue streams.

This reform will remove any incentive for illicit gambling and should help eradicate the illegal untaxed market in betting, which is currently estimated to be worth approximately £500 million per year.

Spread betting

The spread betting industry operates in a different way and is subject to different regulatory requirements from the fixed odds bookmakers. To reflect these differences and ensure a more level playing-field, spread betting firms will be subject to lower rates of Gross Profits Tax: 3 per cent for financial spread bets and 10 per cent for other spread bets, including sports bets.

On-course betting

The Government recognises the importance of the duty exemption for on-course betting in attracting punters to attend racecourses and greyhound tracks, and in determining the ?Starting Prices? used extensively by off-course bookmakers. On-course betting at these venues will therefore continue to be exempt from duty under the Gross Profits Tax. The Government will be consulting on whether to retain the on-course exemption for betting at other sports venues, or to bring betting at these venues into the scope of the new system. In either case, the Government believes punters at these venues should not be charged deductions on their bets.

Other bets

Bets placed with brokers, or with ?agents? who hold bookmaker's permits, will be brought within the scope of the Gross Profits Tax, although this will not apply to bookmakers who are acting as agents for the TOTE.

Casinos

In line with its previous commitments, the Government also announced today that it would help casinos by up-rating the gaming duty bands in line with inflation for the third successive year. If the bands were not increased in this way, casinos would have to pay an extra £2 million per year in tax.

NOTES FOR EDITORS

1. An economic analysis of the options for taxing betting was carried out on behalf of HM Customs and Excise by Nottingham Trent University and Nottingham University Business School. A copy of this document, and the responses to the consultation exercise, have been placed in the House of Commons library, and are available on request from the Gambling Policy Team, HM Customs and Excise, 3rd Floor, Ralli Quays, Stanley Street, Salford, M60 9LA.

2. Gaming duty is charged as a percentage of casinos? gross profits (the difference between stakes placed and winnings paid out), on the basis of a banded structure. The Government is committed to adjusting the duty bands in line with inflation for the lifetime of this Parliament. This protects the casinos against increases in their tax liability brought about by erosion of the value of the duty bands over time. The changes will prevent the industry from having to pay an extra £2 million per year in duty.

3. Details for businesses are published in Budget Notices BN 91/01 (betting duty) and BN 94/01 (gaming duty). These are available from Customs and Excise Business Advice Centres and from the Customs and Excise Internet site:

External links

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020 7865 5471 / 5472.

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