House of Commons
|Session 2006 - 07|
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Public Bill Committee Debates
Value Added Tax (Betting, Gaming and Lotteries) Order 2007
The Committee consisted of the following Members:
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
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.
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
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.
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
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.
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?
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
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
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 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.
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.
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