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teen gaming | accountingweb | Remote Gaming Duty Case

Gaming website wins tribunal round in RGD case


The definition of ‘prize’ and ‘win’ had the tribunal reaching for a dictionary in this remote gaming duty case.

8th Mar 2024
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What does it mean to win a prize? That was the question for the first tier tribunal (FTT) in L & L Europe Ltd vs Revenue and Customs Commissioners [2024] UKFTT 144 (TC).

L&L operate a number of gaming websites, on which users can participate in games of chance. A user could choose from a number of different games and could pay money to “take a spin” (the language used by L&L and the FTT to refer to placing a bet). 

A spin could have three outcomes:

  1. The user could receive nothing.
  2. The user could receive an amount less than the cost of the spin.
  3. The user could receive an amount more than the cost of the spin. 

Both outcomes in 2 and 3 were described as being “wins” by L&L, which the FTT accepted as accurate. If a user spent the money he had deposited in his account, the user could activate the cashback offer. This would credit his account with 10% of the deposit amount. The same cash wallet also contained any amounts deposited by the user or amounts won on the website and these amounts could be withdrawn for cash.

Prize decision

The question for the FTT was whether the amounts paid as cashback were “prizes” when calculating L&L’s profits for the purposes of remote gaming duty (RGD). RGD is levied under Chapter 3 of Part 3 of the Finance Act 2014. Importantly, it is levied on a gaming provider’s profits on ordinary gaming. Under section 157, the profits are calculated as the sum of “gaming payments” received by the provider less the provider’s expenditure “on prizes in respect of such gaming”. The meaning of “prize” is expanded by section 160(3), which provides that a return of a payment is to be treated as a prize.

L&L had two arguments. First, that the cashback payments were prizes within the ordinary meaning of that word in section 157. Alternatively, that the cashback payments were deemed to be prizes by section 160(3).

Eyes on the prize

During written correspondence, HMRC had placed heavy reliance on the definitions of “prize” and “win” in the Oxford English Dictionary to suggest that the cashback payments could not be prizes because they were paid to losing players. In response, L&L quoted from the Cambridge English Dictionary to argue that winning was broader than the specific outcome of a game.

Fortunately, the FTT did not decide the case on the basis of either dictionary definition. Instead, the meaning must be understood within the statutory context of RGD. The FTT held that the phrase “prize… won” in section 157(2) refers to any sum “paid out directly as a consequence of the inherent features of the game of chance” operated by the provider. 

Notably, HMRC did accept that a user had won, even if the amount received was less than the cost of the initial spin. This ultimately undermined HMRC’s case and the FTT struggled to understand the distinction between such winnings (which were deductible as prizes) and the cashback payments in dispute. The FTT held that there was no distinction between a user who wagers £1 and wins 10p and a user who wins nothing but is entitled to 10p in cashback. Both are possible outcomes of participating in the online games.

For this reason, the FTT accepted that the cashback payments were prizes and allowed the appeal. 

On a roll

Although not strictly necessary to decide the appeal, the FTT went on to consider L&L’s alternative argument that the cashback payments were deemed to be prizes under section 160(3). L&L argued that the cashback payments were a real cost to the business because a user could withdraw the sums in exactly the same way that winnings could be withdrawn, and economically represented a return of the customer’s gaming payment.

The FTT accepted these arguments and held that the payments would have been deemed to be prizes if one adopted a more narrow interpretation of section 157. The cashback payments in question were both contractually and economically a return of part of the user’s payments to L&L and would therefore fall within the scope of section 160(3). 

The FTT considered that the purpose of section 160(3) was to broaden the definition of “prize” and ensure that RGD is only charged on the “net operation of gaming”, although this is arguably begging the question: what constitutes the net operation of gaming? Ultimately, the FTT did not need to address this question, but it suggests that the FTT was willing to adopt a broad, purposive interpretation, in contrast to the restricted and legalistic definition for which HMRC was arguing.

Replies (2)

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By Duggimon
11th Mar 2024 09:54

section 157(2) refers to any sum “paid out directly as a consequence of the inherent features of the game of chance”

I'm struggling to see how this applies to a guaranteed cashback of 10%. That's surely not the result of chance at all?

I expect the net effect is the same given that it ought to reduce L&L's receipts rather than increase the amount treated as winnings but it's odd the FTT chose to treat it the same as a win.

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By WinterDragon
11th Mar 2024 14:57

For once it appears HMRC have the moral case but not the legal one. I'm more concerned as to the ethical standpoint of defining a negative sum outcome as a 'win' to the end punter.

Overall, I'm not impressed with L&L (forgive me) gaming the system...

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