The
Committee consisted of the following
Members:
Burgon,
Colin
(Elmet)
(Lab)
Clarke,
Mr. Charles
(Norwich, South)
(Lab)
Clelland,
Mr. David
(Tyne Bridge)
(Lab)
Coffey,
Ann
(Stockport)
(Lab)
Duddridge,
James
(Rochford and Southend, East)
(Con)
Dunne,
Mr. Philip
(Ludlow)
(Con)
Eagle,
Angela
(Exchequer Secretary to the
Treasury)
Field,
Mr. Mark
(Cities of London and Westminster)
(Con)
Foster,
Mr. Don
(Bath)
(LD)
Foster,
Michael Jabez
(Hastings and Rye)
(Lab)
Greening,
Justine
(Putney)
(Con)
Jones,
Mr. Kevan
(North Durham)
(Lab)
McKenna,
Rosemary
(Cumbernauld, Kilsyth and Kirkintilloch, East)
(Lab)
Newmark,
Mr. Brooks
(Braintree)
(Con)
Rogerson,
Dan
(North Cornwall)
(LD)
Salter,
Martin
(Reading, West)
(Lab)
Ward,
Claire
(Lord Commissioner of Her Majesty's
Treasury)
Hannah
Weston, Committee
Clerk
attended the Committee
Third
Delegated Legislation
Committee
Monday 22
October
2007
[Ann
Winterton
in the
Chair]
Value Added Tax (Betting, Gaming and Lotteries) Order 2007
4.30
pm
The
Chairman:
Before I call the Minister to move the motion,
members of the Committee might like to know that it is perfectly
convenient for gentlemen to remove their jackets, should they so
wish.
The
Exchequer Secretary to the Treasury (Angela Eagle):
I beg
to move,
That the
Committee has considered the Value Added Tax (Betting, Gaming and
Lotteries) Order 2007 (S.I. 2007, No.
2163).
I welcome you
to the Chair of our proceedings, Lady Winterton. This is the first time
that I have served under you on a Statutory Instrument Committee since
taking up my current role. It is good to see you in the Chair, and I am
sure that you will preside over us with your usual
effectiveness.
The
order came into force on 1 September 2007 and amends group 4 of
schedule 9 to the Value Added Tax Act 1994 in relation to participation
fees for playing bingo and other games of equal chance to reflect the
implementation in Great Britain of the Gambling Act 2005. The
Gambling Act does not affect Northern Ireland, and the order ensures
that the VAT treatment of participation fees in Northern Ireland
remains the same. The aim of the order is broadly to maintain the
existing VAT exemptions.
It may help the Committee if I
briefly outline the background to the order. Gambling is generally
exempt under European Union VAT law, although it is within the
discretion of each member state to determine the conditions and
limitations of an exemption. Budget 2004 announced that the Government
would review gambling taxation in the light of what was then the
Gambling Bill. Necessary changes were made to ensure that VAT and
excise legislation was aligned with the Gambling Act, which came fully
into force on 1 September
2007.
Previously,
VAT law linked to the Gaming Act 1968 provided that participation
charges for most commercial bingo, and the charges made by casinos for
gambling in card rooms, were liable to VAT at the standard rate, but
participation charges for small-scale gaming, gaming that is not for
private gain and remote gaming were exempt.
The aim of the order is broadly
to maintain the existing VAT exemptions, but the underlying gaming
legislation is complex. The changes that the Gambling Act introduced in
Great Britain are significant and include allowing charges to be made
for games played against the operator. The order extends the scope of
taxation for charges made for such games, as well as for
gaming provided illegally, which sounds odd, but I will be quite happy
to explain it if hon. Members wish me to do so. The order also includes
minor changes resulting from amendments to social law, but the scope of
the existing exemptions is broadly
maintained.
As does
the Gaming Act, the Gambling Act contains separate provisions allowing
gaming that is not for private gain to take place without a licence and
small-scale gaming to take place in establishments such as fairs and
family entertainment centres. As in the Gaming Act, regulations may
also be made under the Gambling Act setting out the stake and prize
limits for gaming under the relevant provisions.
Similar
charges are made in Northern Ireland by virtue of regulations made
under article 76 of the Betting, Gaming, Lotteries and Amusements
(Northern Ireland) Order 1985. The Gambling Act applies only to Great
Britain, so it will not repeal the Northern Ireland order, which will
remain in existence.
The order will ensure that
gaming within the limits that I have described continues to be exempt
from VAT. It will also ensure that gaming for small prizes in a bingo
hall continues to be
exempt.
The amendments
are the final part of the programme announced in Budget 2004 to update
VAT law in the light of the Gambling Act, and I commend the order to
the
Committee.
4.34
pm
Justine
Greening (Putney) (Con): May I also say what a pleasure it
is to serve under your august chairmanship, Lady Winterton? I hope that
those who think that Parliament does not have enough women MPs will see
that there is a good turnout of female MPs on our Committee.
I have a number of questions
about the order, including about the taxation of illegal gaming. I am
grateful to the Minister for explaining how the order will work. As I
understand it, the overarching purpose of the statutory instrument is
to enable the Value Added Tax Act 1994 to be updated appropriately
following, as the Minister mentioned, the introduction of the Gambling
Act 2005, which came into force on 1 September this
year.
My
understanding is that the three principal effects of the order will be
to introduce standard rate VAT for the participation fees that can now
be charged under the 2005 Act; to introduce standard rate VAT on
non-cash prizes in excess of the £500 limitalthough, as
it is stated, such activity would be illegal; and, as the Minister
mentioned, to introduce standard rate VAT on illegal gaming. I have
some brief questions on which I should appreciate the Ministers
further
comments.
First,
with regard to the VAT standard rating on participation fees, will the
Minister confirm that, as the explanatory memorandum states, that
relates to gambling against the house, for example, in games of
roulette or blackjack, but that participation charges in relation to
gambling against other players, such as in bingo and poker, are
exempted? Furthermore, as to bingo, note (10) in the statutory
instrument specifies that the provision relates to small prizes in a
bingo hall. Will the Minister therefore confirm whether participation
fees charged to participants in bingo games with prizes in
excess
of £500not small prizeswould be subject to
standard rate VAT, as I understand that they are
now?
Obviously,
non-cash prizes in excess of £500 are also now subject to
standard rate VAT, under the order, as are illegal gaming activities.
With regard to the VAT charged in all three relevant areas, has the
Treasury estimated the expected tax revenues from the implementation of
the statutory instrument?
The final
matter of raising standard rate VAT on illegal gaming poses an
interesting series of questions. First, will it be for the Gambling
Commission to refer cases for investigation to Her Majestys
Revenue and Customs, or will HMRC investigate directly, without
reference to the Gambling Commission and the regulatory framework set
out in the Gambling Act 2005? In the latter case, will there be any
obligation on HMRC officers to inform the Gambling Commission of any
investigations that are being initiated, and their subsequent
progress?
Will the
Minister outline her understanding of the current level of illegal
gambling in this country, and the VAT that she expects the Treasury to
raise from those activities? Will the VAT owed be pursued by HMRC prior
to the outcome of any prosecutions, or while prosecutions are
continuing? Assuming that prosecutions are successful, at what stage
will HMRC step in to recover VAT on those gaming activities, which will
then be deemed
illegal?
To
what extent will illegal activities be classed as taxable? For example,
will all the gambling revenues of an operator that is successfully
prosecuted become subject to VAT, or will it be only an assessed
proportion of illegal gambling, as compared with the rest of the
business in which gambling activity might still be deemed lawful under
the Gambling Act 2005?
Will any retrospective
assessment be made of that, and, if so, for what period of time does
the Minister think that the assessment will be made? For example, will
it relate to the year in which the prosecution is successful, or the
year in which the prosecution is mounted? I am sure that the Minister
will appreciate that there may be a difference in the potential
recovery of VAT that is due, depending on the answer to that question.
An illegal gambling activity against which a prosecution has been begun
might rapidly shut down, so that in the tax year in which a prosecution
was successfully concluded zero revenues would be available against
which to charge VAT, whereas in the previous year, when illegal
activity was under way, VAT-able revenues might have existed. How will
that work? Will there be any retrospective element to what happens? If
the prosecution establishes that illegal activities have been going on
for several years, will the VAT be backdated to cover that period of
illegal
activity?
As
to the decision on a regulatory impact assessment, the Minister said
that, broadly, the order will update the Gambling Acts impact
on the Value Added Tax Act 1994, but participation fees had not been
introduced before the Gambling Act. Can she assure us that if the
industry uses them far more extensively than expectedthe
explanatory memorandum says that she believes that for competitive
reasons, few operators will want to introduce them, but that assumption
might prove incorrectshe will then reconsider whether a
regulatory impact assessment is necessary?
Those are my key points. As I
said, I appreciate that the orders thrust is to align the VAT
Act with the new Gambling Act. I look forward to the Ministers
comments.
4.40
pm
Mr.
Don Foster (Bath) (LD): I am also delighted to serve under
your chairmanship, Lady Winterton. In view of the remarks of the hon.
Member for Putney, I wonder whether I should apologise for my gender,
but I am delighted that the Front-Bench Members speaking for the other
two parties are of the opposite
gender.
Broadly
speaking, we welcome the order. It is an important update to
legislation in light of the new gambling legislation, but what
consultation has been carried out on it and its impact? The changes
were made after the Budget identified that they needed to be made. The
Finance Bill received Royal Assent on 19 July, and the order
was presented a few days later on 25 July, the day before the House
went into recess. I accept that this is therefore the first opportunity
that we have had to debate it. However, I am interested to know what
consultation took place before the order was laid on 25 July.
My
understanding is that a number of organisations affected by the order
have come to slightly different conclusions about its possible impact,
so I am somewhat surprised at the decision not to hold a regulatory
impact assessment. I note that the key issue is participation fees,
particularly for table games in casinos. As the hon. Lady pointed out,
the Government estimates that not many organisations will choose to
levy them, but views differ within the industry about the
orders impact, so I should be interested to know about
consultation. I understand that the VAT on illegal activities is in
line with all other current practice, and I welcome it. It is not at
all complicated or difficult; it is simple and
appropriate.
My
final point relates to bingo. During debate on the Budget, the
Government said that they would reconsider VAT on bingo. As the
Minister and Committee members are aware, bingo is a crucial part of
the social fabric of many of our towns and cities. It provides an
excellent opportunity for low-scale gaming with little risk of problem
gambling and brings a huge amount of money into the Treasurys
coffers. It has been well expressed on many occasions that it is the
only part of the gaming industry to have a form of double
taxationgross profits tax is paid as well as VAT. During Budget
discussions, the Government withdrew consideration of doing anything
about it. The order was an opportunity to take action that would have
been welcomed by Members from all parties who have pressed the issue by
tabling early-day motions, lobbying Ministers and so on. Will she
update us on the Governments plans to deal with the one
gambling sector suffering double
taxation?
4.44
pm
Angela
Eagle:
I welcome the broad acceptance by hon. Members that
essentially the order maintains the status quo in translating the VAT
regulations from the old Gaming Act to the new Gambling Act, which was
passed by the House in 2005. We are ensuring that a broadly similar
process applies. I welcome the hon. Member for Putney to her first
Statutory Instrument
Committee. I am sure that she will serve on many more before she is
finished. We know how fascinating they are and we all look forward to
them. I also welcome the hon. Member for Bath to his place. He should
not feel too worried about his genderI certainly do
not.
Let me deal with
the minor extensions. There is the extension of VAT to participation
fees for games against the house, which was part of the change that
happened when the new gambling legislation was dealt with by the House.
The other issue is the rather odd one of taxing illegal gambling, which
I shall deal with
first.
It seems odd
that we tax things that are illegal, but it is a general feature of VAT
rules, as I discovered when I looked into the matter more closely. It
is partially also a feature of how the new legislation was written. In
the new gambling structures, most things are taxed and the things that
are not are excluded, so we have changed from an opting-out to an
opting-in process. By definition, illegal gambling is in because it is
not exempted, which is why we have this rather odd situation with VAT
law in which, in theory, we are taxing things that are
illegal.
I shall deal
with some of the questions from the hon. Member for Putney in turn. If
illegality is discovered, it is possible that some taxes will be levied
on it, but it is for the Gambling Commission to pursue illegal gaming.
Only after that has been doneif there are processes in place
whereby the extent of it is discovered and brought up in that process
and subsequently, I presume, also in courtis there likely to be
an issue for VAT. In other words, HMRC will not be the lead agency in
pursuing illegal gambling, but it may well take an interest if the
Gambling Commission pursues particular cases and certain things come to
light as a result. I believe that the retrospectivity goes back three
years in that case and no
further.
The hon. Lady
asked other questions. Participation fees for main-stage bingo in
licensed bingo halls remain liable to VAT. Only participation fees for
small-prize gaming are exempt. She rightly consulted the order, which
has a list of the circumstances in which exemptions apply in article 4
and, helpfully, definitions of what they all mean in most of the rest
of the order. Essentially, that just maintains the status quo, in that
it allows for very small-scale, almost non-commercial, gaming to take
place in the particular circumstances in which it always has taken
place. In that way, it maintains a status quo with which the House has
always been happy.
We
do not expect to raise any extra revenue with the order. The hon. Lady
asked how much extra tax we were hoping to rake in from these changes.
The answer is none. This is simply a technical exercise in making the
new law fit in with the new structure of gambling legislation, which
the Department for Culture, Media and Sport proposed and the House
supported in
2005.
I
do not think that there is a requirement to consult when we are just
reconnecting parts of laws with new law. We have been working with the
DCMS to ensure that the Gambling Act 2005 and the new social law are
properly connected to VAT structures, but we have not launched a huge
consultation with the industry about what is essentially a technical
change. The hon. Member
for Bath will know that the Act was subject to a great deal of
pre-legislative scrutiny and went through the House. He may well have
been involvedit looks from his wry smile as though he was. He
probably knows more about how the Act was passed than I do, but I do
not think, given what was in the Finance Bill and where we are now,
that we needed to launch a huge new consultation about an essentially
technical statutory instrument, the need for which was implied in
the 2005
Act.
Mr.
Foster:
I shall explain to the Minister why I believe that
there would have been merit in some consultation. The explanatory
memorandum
states:
Because
this Order broadly maintains the existing exemptions, the changes which
it makes are not regarded as significant. Nor is it anticipated that
there will be a significant level of public interest in the changes
made.
As
the Minister will be well aware, the problem is that, because a number
of the activities that take place in gambling establishments are
exempt, those establishments are therefore unable to reclaim VAT, which
can have a serious taxation and financial implication for them. They
have different views about whether the best position would be to be
exempt, so there would have been a benefit in consultation. I am
disappointed that there was
none.
Angela
Eagle:
I am sorry that the hon. Gentleman is disappointed,
but I wish to focus on the essentially technical nature of the order.
There are all sorts of reasons to consult the industry about wider
changes, but the order essentially maintains the status quo. We must
ensure that we do not consult on absolutely everything for the sake of
it. It is reasonable for us simply to get on and make new statutory
instruments in accordance with the new law so that we can continue to
collect revenue on the games in question. That is also why there is no
regulatory impact assessment with the order; our assessment is that the
changes will have such a minimal impact that there is no need for one.
As important as statutory instruments are, there must be a de minimis
level of change for there to be the huge amount of consultation that
there is on more important measures. I hope that the hon. Gentleman
accepts that
answer.
The
hon. Gentleman asked what the current thinking is on bingo taxation. I
am aware of the worries in the industry on that issue. I have examined
the matter and realised that the effective rate of taxation faced by
the bingo industry is in the 20 to 25 per cent. range, which also
applies to lottery duty, gaming duty and machines taxation. If the hon.
Gentleman sat through all the debates on the Gambling Act, he will be
aware of the changes that were made in 2003 to reduce significantly the
effective taxation level of bingo from about 35 per cent. to 25 per
cent.
The
Governments position has never been that a single tax rate need
be applied across all gaming duties, but it is our intention to
maintain fairness in gambling taxes and tailor regimes to the specific
circumstances of each sector. It is appropriate to reflect the wide
diversity of gambling activities and the different circumstances in
which they operate, so we have different rates and different ways of
paying. I do not have a problem with that, even if the bingo industry
does.
On the different treatment of
casinos and card games, I believe that there was an error in the
understanding of what was being taxed, so the tax is currently avoided.
I am happy to tell the Committee that we are examining that, but I am
not in a position to make an announcement about
it.
Mr.
Foster:
May I take it from the Ministers comments
about bingo that she is satisfied that there is no need for a change?
That would be a significant shift from the position of her predecessor,
who acknowledged the need to review the issue. Have the Government
carried out that review and concluded, as she implies, that no change
will be needed? Is that the end of the matter as far as they are
concerned? If so, it is very
disappointing.
Angela
Eagle:
I am still looking at those issues, and I do not
want the hon. Gentleman to put words into my mouth. He should keep his
eyes and ears open and see what
happens.
James
Duddridge (Rochford and Southend, East) (Con): What
consideration has the Minister given to the correct taxation
benchmarking for the bingo industry? She mentioned the gaming industry
more generally and compared it with bingo, but has she considered also
benchmarking other leisure activities and seeing whether there is an
equal level of taxation? Certainly, in my constituency, bingo is an
alternative to other leisure activities, but not particularly to other
forms of
gaming.
Angela
Eagle:
It is important to ensure that tax rates for
different forms of gambling in the gaming sector are not wildly out of
kilter. Cuts in effective taxation in 2003 brought down taxation of the
bingo industry to
the average. That appears to be accurate, but I shall go away and
consider the hon. Gentlemans thoughts on other parts of the
leisure industry.
The most
important issue, however, when considering taxation rates is the
gambling sector itself. If the hon. Gentleman thinks that there is some
distortion in his constituency, I am happy for him to present me with
his views and observations. As he knows, the Government keep all such
regimes under constant review in case things evolve differently or
other matters need to be considered. If he wishes to contact me about
that, I will be more than happy to listen. At the moment, however, I am
reasonably content that the effective taxation of different forms of
gambling is reasonably
aligned.
We
have discussed the aim of the order, which is broadly to maintain the
existing VAT exemptions. I am aware of the bingo industrys
concerns, which, as I expected, have emerged during todays
discussion. I assure hon. Members that we are looking at this matter
closely. The order will ensure that the scope of the existing
exemptions is broadly maintained. The changes brought about by the
Gambling Act were significant, but where possible we have linked the
changes to the underlying social legislation, which for the first time
will allow for charges to be made for games played against the
operator. The order will ensure that those charges will be liable to
VAT.
I hope that hon.
Members of all parties will give the order their
approval.
Question
put and agreed
to.
Resolved,
That
the Committee has considered the Value Added Tax (Betting, Gaming and
Lotteries) Order 2007 (S.I. 2007, No.
2163).
Committee
rose at two minutes to Five
oclock.