UK bookmaker Betfred has won a ruling against the taxman meaning the UK bookmakers could be in line for a windfall running into billions of pounds.

Two months ago it was all doom and gloom for the UK’s high street bookmakers. The limit on fixed-odds betting terminals (FOBTs) had been slashed from ￡100 ($132) to ￡2 ($2.64), and the only sound you could hear was weeping coming from the boardrooms of William Hill, Ladbrokes, Betfred, and the rest of the high street chains.

Thousands of betting shops would close; there would be widespread loss of jobs, and the British high street would be devastated by the loss of footfall and the consequent glut of empty properties.

Fast forward to mid-summer, and the situation looks very different. To the outrage of anti-gambling campaigners – with Labour’s deputy leader Tom Watson calling it a “pathetic move from a fundamentally weak government” – the reduction in the maximum stake on FOBTs has been delayed for two years. Ostensibly, this has been done to give the industry “time to prepare”. However, those who support the reduction say that the FOBTs can be changed in nine weeks, not two years.

Good news – and more good news

But there is even better news on the horizon for UK bookmakers, and it comes from an unlikely source: Her Majesty’s Revenue and Customs. It appears that the taxman is about to hand UK bookmakers a windfall which could run into billions of pounds – and it is all thanks to fixed-odds betting terminals.

A recent taxation tribunal has ruled in favor of Betfred after the company took HMRC to court overpayment of VAT (value added tax) on FOBT winnings between 2005 and 2013.

The bookmaker’s argument was simple: winnings from FOBTs should be exempt from VAT as the winnings from similar games – presumably we are talking about games such as roulette here – were exempt from VAT if customers played them online or in a casino.

Therefore, Betfred argued, the decision to apply the 20% VAT rate to FOBTs, on top of the 15% betting duty to which they were already subject, was a clear breach of European tax law.

The tribunal found that the games were sufficiently similar – and agreed with the bookmaker’s case that the principle of fiscal neutrality meant that they could not be treated differently for taxation purposes.

Mark Stebbings, Betfred’s Managing Director, said: “We welcome the decision, which pre-dates the introduction of Machine Games Duty in 2013.”

No surprise there – especially as the figure Betfred can expect to receive has been estimated at ￡100m ($132m). And clearly, what applies to Betfred will also apply to all the other bookmaker chains (and independent shops) that have been forced to pay VAT on FOBT winnings.

The taxman has been given leave to appeal the tribunal’s decision, but it seems difficult to see how the appeal can be successful: after all, deciding that a game of roulette played on an FOBT is almost identical to a game of roulette played in a casino is not a difficult decision.

Predictably, anti-gambling campaigners were quick to criticise the judgment. The bookmakers’ most vociferous critic, Labour MP Carolyn Harris, declared that she was “incensed by the news” and said that the government was “playing Russian roulette with the lives of problem gamblers.”

But there are some questions…

In some respects, you can understand the fury of Ms. Harris and her supporters. Betfred appears to have won its case by arguing that the company’s shops were – in effect – offering the same games as a casino. Planning applications for casinos are very tightly regulated in the UK, and I am sure it is not the intention of the planners – or the licensing authorities – that there should be ten casinos within a five-minute walk from my office.

This could, in theory, lead to local authorities looking more carefully at bookmakers’ planning applications for new shops – which are clearly going to contain FOBTs at least until 2020. You suspect, though, that with the UK high street under continuing pressure, they would see any frontage in a town center as better than no frontage at all.

Will this cause more problem gambling?

According to figures from the UK Gambling Commission, nearly 14% of people who regularly play on FOBTs are problem gamblers, and campaigners have said that the delay in reducing the maximum stake on FOBTs will lead to “problem gamblers losing another ￡1bn ($1.32bn) over the next two years”.

It is, though, easy to be sensationalist. The latest research from the Gambling Commission suggests that a problem gambler is most likely to be a young, unemployed male who is looking for work – and someone who is likely to gamble through the night. That emphatically does not fit the profile of a typical FOBT user, who tends to be older. As both sides in the argument well know, problem gambling is moving increasingly online.

In the short term though, the bookmakers are left counting their winnings – a nice bonus after a very successful World Cup for the industry. The government is facing more criticism and it looks as though nothing much will change for the next two years. Which is probably exactly what the bookmakers wanted…