Press Release - HM Customs and Excise: Gambling Duties
14 January 2005
The introduction by Customs in 2001 of gross profits tax for
betting has been a success in encouraging the biggest bookmaking
firms to retain their core operations in the UK. The challenge now
for Customs is to address the new risks to duty revenue posed by
the use of new forms of gambling such as betting exchanges,
increasingly available through advances in technology.
According to today’s report to Parliament by head of the
National Audit Office Sir John Bourn, the gambling industry has
changed significantly since the Public Accounts Committee’s last
report, in 2000, on gambling duties. In addition to the
introduction of gross profits tax – whereby, rather than punters
having to pay tax on their stakes or winnings, traders pay tax on
their gross profits (stakes less winnings) for betting, pools and
bingo - the industry has developed new electronic gambling methods
and products.
Customs has implemented most of the recommendations made by the
Public Accounts Committee in 2000 and has work in progress on the
remainder. In doing so it has secured additional revenue of £10
million by, for example, recovering arrears of amusement machine
licence duty and it has reduced significantly illegal betting.
Today’s report recommends that, to implement the Committee’s
recommendations in full, Customs needs to complete the work
underway to estimate the ‘tax gap’ for general betting duty,
including internet betting, and extend this work to other gambling
duties to enable better targeting of resources to tackle the
potential losses of revenue.
The gross profits tax, introduced in October 2001 to general
betting duty, has protected duty revenue by encouraging bookmaking
firms to bring their telephone and internet businesses back to the
UK and retain their core operations here. The initial fall in
revenue from general betting duty, from £487 million in 2000-01 to
£383 million in 2003-04 was in line with Customs’ estimates when
making the change and it is likely the fall would have been higher
under the old regime.
Customs underestimated the popularity of new gambling products
with low profit margins such as betting exchanges. Consequently,
the duty revenue rate has been much lower than expected (down from
6.7 per cent in 1999-00 to 1.2 per cent in 2003-04 as a percentage
of bets placed), even though spending on betting has been higher
than expected in terms of value of bets placed. Customs extended
gross profits tax to pools betting in April 2002, causing duty
revenue to halve, and to bingo in October 2003.
Customs has reduced the resources allocated to gambling duty
work: from 41 staff years in 1999-2000 to 26 in 2003-04. Despite
this reduction, Customs has improved its risk assessment and
compliance work, especially with the recent creation of dedicated
national teams, one for the 11 largest traders and two covering
medium and small size traders. For example, detailed risk analyses
have now been developed for each of the largest traders, and in
2003-04 for the first time inspector visits to small and medium
size traders were determined in large part by the outcome of a
comprehensive risk model.
However, Customs needs to make better use of the information it
obtains on traders from visits and other contacts, as well as using
external research and random sample audits, to improve further
their risk assessments and targeting of resources. Also, Customs
should make more use of penalties to encourage traders to pay the
full duty they owe on time.
The gambling industry’s use of electronic technology to develop
new forms of gambling poses new risks to revenue. Betting
exchanges, interactive TV gambling, mobile phone gambling, spread
betting and internet gaming have all emerged in recent years.
Customs will require more IT expertise to carry out compliance work
on these activities. Customs has made some progress in
understanding the new products, and has investigated many e-gaming
sites. It now needs to refine its risk assessment to take account
of these new products as well as any changes arising from the
proposed Gambling Bill. With the creation of the new HM Revenue and
Customs department and the proposed Gambling Commission, Customs
should also take advantage of opportunities to pool expertise and
resources and share information on traders.
Sir John Bourn said today:
"Customs has made progress in implementing the
recommendations of the Public Accounts Committee in its 2000 report
on gambling duties. The introduction of the gross profits tax has
also been successful in persuading the largest bookmaking firms to
continue to base their core operations in the UK, thereby
protecting revenue and industry jobs.
"The challenge for Customs now is to keep pace with and
develop its expertise to deal with new forms of electronic
gambling. It should also complete its work on measuring the tax gap
for gambling duties to ensure resources are targeted on the areas
of loss."
Notes for Editors:
- There are six types of gambling duties: lottery, general
betting, bingo, gaming, pools betting, and amusement machine
licences. National lottery and general betting make up between them
two thirds of total revenue, which amounted to £1.35 billion in
2003-04.
- The tax gap is the gap between the theoretical tax payable and
the actual amount collected.
- Today’s report follows up a previous NAO report: Revenue
from Gambling Duties (HC 352 Session 1999-2000, published on
30 March 2000). The Committee of Public Accounts also published a
report on the subject (39th Report on the Committee of Public
Accounts – HM Customs and Excise: Revenue from Gambling
Duties, HC 423 Session 1999-2000).
- Press notices and reports are available from the date of
publication on the NAO website,
which is at www.nao.org.uk. Hard copies can be
obtained from The Stationery Office
on 0845 702 3474.
- The Comptroller and Auditor General, Sir John Bourn, is the
head of the National Audit Office which employs some 800 staff. He
and the NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 04/05
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