TC09643 - [2025] UKFTT 01117 (TC)

The Appellant has not included within its gaming profit calculation as a gaming payment any amount associated with a Free Spin. We now have to determine whether it should have done so. In this regard we are required to interpret section 159A FA14.

To the extent that the Appellant really pursued the argument that participation in the Free Spin met the requirements of section 159A(1), (2)(b) and (3) we reject it. In our view those provisions plainly require that the gaming payment be made using money/money’s worth the use of which is restricted to further participation in gaming but where the money has been won in reliance on an offer which waives all or part of a gaming payment. The distinction between (2)(a) and (b) being whether the gaming payment for the second or subsequent act of participation is met from winnings (bonus cash) directly from the offer to participate when the gaming payment is waived or down the line from subsequent bonus cash winnings which has been re-wagered. Thus, once it is determined that participation in the MR Spin was not pursuant to an offer to waive the gaming payment the Free Spins won are not derived from participation pursuant to such an offer either directly or through re-wagering.

We do not consider that there is an iota of ambiguity in that interpretation, and we do not therefore need to consider the terms of the explanatory note. However, the Appellant contended that its interpretation was supported by its terms. Concerning subsections (1) – (3) the note states:

“8.

Subsection (3) introduces a new section … to deal with play using the winnings from successful freeplay.

9.

The new subsection (1) provides that an amount is not to be treated as a “gaming payment” under section 159 if it meets both the conditions to qualify as “excluded winnings” as defined in subsections (2) and (3).

10.

The new subsection (2) requires that the money has been won from participation in gaming by means of a freeplay or, that it has been won from participation in gaming by means of a payment from money that can only be used for participating in gaming.

11.

The new subsection (3) … requires that an amount can only qualify as “excluded winnings” if it is money that can only be used for participating in gaming.

We can see that the terms of paragraphs 10 and 11 create an ambiguity in the interpretation we have adopted. However, we do not consider that the terms of the note accurately reflect the language of the provision; they ignore the requirement that the payment must be paid out of money in relation to which “this condition” and the second condition apply. In our view if rather than saying “requires that the money has been won from participation in gaming by means of a freeplay or, that it has been won from participation in gaming by means of a payment from money that can only be used for participating in gaming” it had said “requires that the money has been won from participation in gaming by means of a freeplay and, where it has been won from participation in gaming by means of a payment from money that can only be used for participating in gaming” it would more properly have reflected subsection (2).

As set out in paragraph 40 an explanatory note cannot be elevated to supplant or alter the meaning of the language used. It can only cast light on the purpose of the legislation and be used to resolve ambiguity in the meaning of the actual words used.

In addition, the Appellant contends that despite there being no charge to RGD on the MR Spin the Free Spin nevertheless meets the terms of subsections 159A(4) and (5). So far as relevant subsection (5) deems a payment which would be treated as a gaming payment under section 159(4)(a) as not so treated where the provisions of section 159A(4) are met.

Given the importance of this we repeat the terms of section 159A(4):

“(4)

Subsection (5) applies where—

(a)

a chargeable person participates in remote gaming in reliance on an offer which waives all or part of a gaming payment, and

(b)

that offer has been won in the course of the person's participation in the gaming (and the person was not given the choice of receiving a different benefit instead of the offer).”

There is no dispute between the parties, and we agree, that as regards a Free Spin the Customer participates in remote gaming in reliance on an offer which waives all of the gaming payment. Without having the benefit of having won the Free Spin on the MR Spin the Customer would have to pay the normal wager/stake for participation in the named games all of which are generally available on the Appellant’s platforms and require that a gaming payment be paid in order to participate.

The real issue concerns the interpretation of the first part of section 159A(4)(b) as the parties also accept that the part in parentheses is met as the Customer is offered no alternative benefit for the Free Spin. They can take or leave the Free Spin, but they cannot have anything else in its stead.

As with section 159 none of the words used in this subsection are defined. We have no difficulty in interpreting “that offer” to mean the Free Spin. We must therefore decide whether the Free Spin was “won in the course of participation in the gaming”.

We have decided that there was no gaming payment within the terms of the statute in connection with the MR Spin but there can be no real question that the Customer participated in the Mega Reel (which HMRC accept was a game of chance and hence gaming) using the internet and was thus remote gaming. It is simply that it was not remote gaming within the scope of the charge to duty. Whether that is enough to meet the terms of section 159A(4) therefore depends on the meaning of “the gaming”.

We accept that the drafting of Chapter 3 provides some situations in which the nature of the gaming referenced is explicit (section 159(5) refers to “the remote gaming” in the context of the deemed time at which the gaming payment is treated as having been received). However, that is not universally the position, the term “the gaming” is used in Chapter 3 in the following places:

In each of the cases where “the gaming” is used we tend to the view that it is referring to gaming of the nature identified immediately before the use of the words “the gaming”. In sections 159(1), 159A(1) – (3), 161(1) and 162(3) that is a reference to remote gaming generally. In section 154(2) however, it is plainly a reference to “pooled prize gaming”. In section 159A(4) we consider it is a reference to gaming in which the chargeable person participated pursuant to an offer which waived the gaming payment i.e. the gaming referred to in section 159A(4)(a).

We accept that this interpretation is not without some ambiguity, and we therefore consider it appropriate to have regard to the external aids available to us.

We start with the explanatory note to FA17. We have already set out paragraphs 8 – 11. So far as relevant the remainder of the note states :

“12.

The new subsections (4) and (5) combined provide that where a person participates in gaming by means of a freeplay, and that freeplay has itself been won from gaming in which no alternative benefit was offered, the use of that freeplay will not be treated as a gaming payment under section 159.

…

15.

Subsection (4) amends subsection 160 … to limit the definition of a prize in that section so that where winnings are credited to a person’s account, only winnings in the form of money that can be withdrawn on demand can be treated as a prize. Section 160 is further amended so that it is to have effect subject to the provisions of section 160A.

16.

Subsection (5) inserts a new section, section 160A … that makes provision about prizes in the form of a freeplay.

17.

The new subsection (1) of that new section provided that where a freeplay is given as a prize by the gaming provider, and thas not been obtained from an unconnected person, that freeplay will have a nil value as a prize for the purpose of calculating a gaming provider’s RGD profits.

…

19.

The new subsection (3) provides a definition of “freeplay” and “freeplay offer” for the purpose of the new section 160A.”

We consider that these notes, taken with those set out in paragraph 73 above, provide some elucidation to the Parliamentary objective for the amendments. From them we discern that the scheme of the amendments was to bring into the charge to RGD the first instance of participation pursuant to an offer that the gaming payment be waived but to exclude participation through re-wagering of money won through having played for free and/or through prizes themselves allowing for further waiver of gaming payments (i.e. spin again on the same game or free spins on other games). The quid pro quo for excluding these amounts was that only monetary prizes capable of withdrawal by the participants would be deductible from aggregated gaming payments for the purpose of calculating gaming profits, and not bonus cash subject to the re-wagering requirement. Thus, to the extent that an initial offer of waiver perpetuates further participation, that further participation is to be equated with playing a free game and not playing for free. We find no support in the terms of the explanatory note for a conclusion that only promotional free play was to be taxed and, for the reasons already stated, we do not consider we are entitled to consider the terms of the consultation, the responses to it or HMRC’s explanation of how the provisions were intended to operate.

However, even were we to have considered that only promotional free play was to be taxed we consider that there is nothing to preclude a conclusion that the MR Spin determined the extent of promotional free gaming to be given to each customer. Addressing the Appellant’s submission that to tax all Free Spins won on the Mega Reel might result in more taxation than had been received in deposits we see that situation as no different to a promotional loss leader. The Appellant presumably chooses to offer 500 Free Spins as a prize because overall it is beneficial to its business by doing so. If the Welcome offer was scoped with such a prize on the basis that there was no tax cost that does not make the taxation of the Free Spins an absurdity simply a consequence of not having correctly determined the tax consequences of the promotional offer made.

The perspective we derive from the explanatory note confirms our conclusion that an interpretation which permits a win from participation outside the scope of RGD to then be perpetually untaxed is contrary to the parliamentary intent. In equal measure it supports an interpretation that “the gaming” in section 159A(4) is a reference to participation “in remote gaming in reliance on an offer which waives all or part of the gaming payment” confirming it as the better view.

The second external aid we consider to be admissible is the heading to section 159A. The heading states that the section concerns “Play using the results of successful freeplay”. We reject HMRC’s submission that the heading is itself to be interpreted by reference to the definition of “freeplay” provided in section 160A(3). We do so principally because Parliament expressly chose to limit the definition provided in section 160A(3) as applying “in this section”. Secondly, to do so is to seek to interpret the statutory aid, contrary to the case law summarised in paragraph 40 above. That said, we do consider that the heading’s use of the word “freeplay” is entirely consistent with and supportive of the interpretation we have applied with “the gaming” looking back to the participation provided for free by way of waiver of the gaming payment.

We are therefore satisfied that whilst participation in the Free Spins won on an MR Spin is participation pursuant to an offer in which the gaming payment is waived that participation was not itself won in the course of participation in gaming reliant on an offer which waives the gaming payment. As a consequence, section 159(4)(a) applies requiring the gaming payment waived on the Free Spin to be included in the gaming profits calculation. It is not excluded by section 159A.