HMRC Triumphs in Free Spins Tax Dispute, Raising Pressure on UK Operators

HM Revenue and Customs (HMRC) has secured a significant victory in its ongoing campaign to tighten compliance in the online gaming sector, as a recent tribunal ruling reaffirmed that free spins awarded as part of promotional offers are subject to remote gaming duty (RGD). While free spins have long caused friction between operators and regulators, this ruling should settle the matter once and for all.

The Ruling Cleared Up Several Edge Cases

The case centered on Jumpman Gaming Ltd, which challenged assessments of over £13 million ($17.56 million) in unpaid duty. The operator, which runs an extensive network of UK-facing online casinos, argued that it had already accounted for tax on its popular “Mega Reel” feature, where players can win various prizes, such as free spins and bonuses.

According to a recent Next.io report, Jumpman agreed that the first spin was a taxable event. However, the company argued that the free spins resulting from that promotion were exempt from taxation. It also alleged that HMRC had gone beyond the statutory time limit in amending one of its assessments.

Despite Jumpman Gaming’s assertions, the First-tier Tribunal disagreed, ruling in favor of HMRC’s interpretation of the Finance Act 2014. Judges examined sections 159 and 159A, which deal with freeplay and waived wagers, respectively. They determined that while the first Mega Reel spin did not attract duty, any free spins given as prizes constituted gaming payments, subject to taxation.

Other Operators Will Likely Take Note

In practice, the tribunal’s verdict means that while Jumpman Gaming actually overpaid on the Mega Reel spins, the company still owes significant taxes on the following free spins. The ruling also rejected Jumpman’s procedural objection, finding that HMRC’s amended assessment constituted a lawful reduction rather than an invalid reissue. Analysts note this development could trigger a wave of compliance reviews across the sector as operators seek to avoid similar disputes.

This ruling could have far-reaching implications for UK operators as they reconsider their free spins and bonus packages, which are often used to bolster player engagement. Increased taxation could lead to less favorable promotions as operators seek to balance their expenses. HMRC has signaled that it expects operators to pay duty upon any promotional play that substitutes actual cash wagers.

The outcome of this dispute echoes HMRC’s clash with Broadway Gaming in 2022, where the court recognized that free plays could be considered when calculating profits for RGD purposes. However, the 2022 ruling stressed that such promotions were not exempt from duty altogether. Combined, the two cases paint a clearer picture of how freeplay must be treated under UK tax law.