Continuation licences and HMRC registration should now be a priority for UK-facing operators ahead of the UK’s move to a point-of-consumption regulatory and tax regime for iGaming from August, writes David Schollenberger of Healys.
The game-changing UK Gambling (Licensing and Advertising) Bill has now progressed through both Houses of Parliament and awaits Royal Assent. The Bill was in the Queen’s speech and introduced to the House of Commons in May 2013. Final amendments to the Bill were made to the Bill on 26 March 2014. The licence requirements are expected to come into effect on 1 August 2014.
The legislation brings significant change to the UK remote gaming landscape. It amends the Gambling Act 2005 to require all operators selling into the UK, whether based in the UK or offshore, to hold a Gambling Commission operating licence to be able to transact business with consumers and advertise in Great Britain. This will make such operators subject to the Gambling Act 2005, its regulations, social responsibility and technical standard requirements.
Further, under the Finance Bill 2014, the UK Revenue and Customs will be changing the rules for remote gaming duty so that remote gaming duty will be due where an offshore operator is required to hold a UK remote operating licence and supplies remote gambling services to persons resident in the UK.
Changes in licensing and regulation
The Gambling (Licensing and Advertising) Bill will change the regulation of remote gaming to a “place of consumption” rather than a “place of supply” basis. Licensing of an operator will be required in the UK if the gambling or betting service is made available to British residents, regardless of where the server and software providing the services is located. The actual wording of the Bill simply states that remote operators are subject to the licensing requirements if: “(1) they have at least one piece of remote gambling equipment used in the provision of the facilities is situated in Great Britain; or (2) no such equipment is situated in Great Britain but the facilities are capable of being used there.”
As a consequence, an operator offering remote gambling services that are accessible in the UK and that does not wish to obtain a UK licence will have to take measures to technically block access to usage of its services by UK customers.
The amendment will repeal the white list for advertising granted to jurisdictions such as Alderney and Isle of Man and only permit advertising of remote gambling in the UK upon licensing in the UK.
Duplication of regulation and transition
Although it does not appear in the wording of the legislation, the DCMS has made assurances in its notes accompanying the Bill that the regulation is not designed to require duplication of requirements imposed on operators located in well regulated jurisdictions (presumably such as Alderney and Isle of Man) and will be “light touch” in those jurisdictions. It further states that that operators in these jurisdictions should not face significant increases in licensing costs.
The Bill makes provision for a transitional period for operators already licensed in EEA and white listed countries awarded an automatic provisional licence so that they will not have to stop trading whilst applying for a UK licence. The length of time of the transitional period is not specifically set out in the Bill, but will be determined in the implementing orders to the Act.
Changes in remote gaming taxation
Separately from the UK Gambling (Licensing and Advertising) Bill, the Finance Bill 2014 will change the current system of remote gaming taxation from a point of supply to a point of consumption tax. Remote gaming duty at the rate of 15% will be payable on the gross gambling profits generated by UK players regardless of where the gaming operator is regulated. The Finance Bill 2014 was introduced to Parliament on 27 March 2014, is currently at the committee stage in the House of Commons. The effective commencement date for taxation of remote operators doing business with UK players is indicated by HM Treasury to be 1 December 2014.
The government justifies this change is necessary due to the increased popularity of remote gaming, that it is consistent with the approach taken by other European countries and removes the unfair advantage currently given to offshore operators over those based in the UK. In fact, the government finally realised and accepted that its more liberal point of supply taxation model encouraged remote gaming companies to set up offshore and lost tax revenue for the UK.
The new tax changes will exclude from gambling duties any profits from transactions from non-UK customers. Treasury believes that this will remove the tax disincentive for operators currently based offshore and encourage operators to return to the UK. The proposals will impose double taxation on operators in jurisdictions where they currently pay gaming duty on a place of supply basis.
Effect on offshore UK-facing remote operators
What will be the effect on remote operators currently based in Alderney, Isle of Man, Malta and Gibraltar? The most pronounced effect will be caused by the gaming duty tax effect on Business to Consumer licencees.
If an operator’s business is primarily UK facing and it is suddenly facing the same or greater gaming duty taxation remaining offshore, there is less incentive to remain offshore. VAT and other considerations may weigh in any decision to stay or not. A number of UK facing B to C operators can be expected to return at least part of their business to the UK.
From a regulatory standpoint, the requirement to have both a UK and offshore jurisdiction licence may not be sufficient incentive to move back, provided that the DCMS’s current intentions for light touch regulation and licence fees for offshore operators is in fact implemented. For Business to Business operators offshore, there will be less impact on the tax side, since their business transactions are generally outside the UK.
Registration and next steps
Operators that do not have key equipment located in the UK are not eligible to apply now for a licence, since under the current legislation, they are not providing “facilities for gambling” in the UK. The Gambling Commission expects that after a minimum of two months after Royal Assent they will be able to invite applications from remote operators required by the Bill to obtain a remote operating licence in the UK.
Those remote gaming operators who currently provide services to UK residents but do not currently have a licence will be able to apply for a continuation licence, which will allow the operator to continue doing business in the UK until a decision is made on a full operating licence application.
At present, the Commission expects the deadline for submitting applications for continuation licences to be mid-July.
With respect to the changes in gaming duty, if an operator will become liable for gaming duty on 1 December 2014, it needs to register by 1 December 2014 with HM Revenue and Customs. HMRC indicates that its online registration service will open in early Autumn 2014 for this purpose.
Time is now short before implementation. Affected operators wishing to continue doing business in the UK should start making plans with its legal advisers to apply for its continuation licence and operating licence applications and for the HMRC remote gaming duty registration