UK RGD Freeplay Deductibility: Why Used Freeplays Are Notional Gaming Payments Under Excise Notice 455a

Freeplays and bonuses offered to UK players cannot be deducted from Remote Gaming Duty profits. When a customer uses a freeplay, the Finance Act 2014 treats them as having made a notional gaming payment equal to the full stake value that would otherwise have been required. That amount enters the dutiable profit calculation as income. There is no corresponding deduction for the promotional cost. With Remote Gaming Duty rising from 21% to 40% for accounting periods beginning on or after 1 April 2026, the tax cost of every freeplay and bonus has very nearly doubled, and any misunderstanding about deductibility now carries a proportionately heavier price.

The Statutory Mechanism: How a Freeplay Becomes a Notional Gaming Payment

The core rule is in Finance Act 2014 (FA 2014), Part 3, Chapter 3. Section 159(4) provides that where a chargeable person participates in remote gaming in reliance on an offer which waives all of a gaming payment, that person is treated as having made a gaming payment of the amount which would have been required without the offer, the “full amount”. Where only part of the gaming payment is waived, the customer is treated as having made an additional gaming payment equal to the difference between the actual payment and the full amount.

“Where the chargeable person participates in the remote gaming in reliance on an offer which waives all of a gaming payment, the person is to be treated as having made a gaming payment of the amount which would have been required to be paid without the offer (‘the full amount’).”, Finance Act 2014, s. 159(4)(a)

Under section 159(5), that notional gaming payment is treated as having been made to the gaming provider at the moment the customer begins to participate, and it is treated as not having been returned or assigned to a gaming prize fund. The effect is that the full stake value of the freeplay appears on the receipts side of the RGD calculation whether or not any real money changed hands. The concept of a “freeplay offer” is defined in section 160A(3) as an offer which waives all or part of a gaming payment or a payment in connection with participation in another gambling activity on which a gambling tax listed in section 161(4) is charged.

Why Bonuses and Freeplays Cannot Be Deducted as Promotional Costs

Operators frequently ask whether the cost of funding a freeplay promotion can be offset against the duty base in the same way that an operator might treat it as a marketing expense for corporation tax purposes. The answer for RGD is no. RGD is an excise duty calculated on dutiable profit, which is defined as gaming receipts (including notional gaming payments) less winnings paid out. The promotional funding behind the freeplay does not appear as a deductible item anywhere in that formula. The notional gaming payment increases the receipts figure, any winnings a customer withdraws following a freeplay reduce the winnings deduction in the normal way, but the cost of creating the opportunity is not recognised on the expenditure side of the calculation.

This treatment was formalised from 1 August 2017 following the Finance (No. 2) Act 2017. Before that date, the RGD regime treated freeplays more generously: they did not carry a notional stake value, and winnings from freeplays, including non-cash prizes, could be deducted as expenditure. The 2016 Budget announced the alignment of RGD freeplay treatment with General Betting Duty free bet treatment. As HMRC’s April 2025 consultation document confirmed, the policy intention was to give all freeplays a notional value as a gaming payment and include them in the duty calculation, removing a structural advantage that RGD operators held over GBD counterparts.

The practical consequence is that every freeplay spin, every no-deposit bonus round, and every complimentary game credited to a UK-resident customer generates a notional gaming payment. That amount cannot be written off against the duty base. It can only be offset if the customer subsequently wins and withdraws real money, which is treated as a winnings payment deductible in the ordinary way.

What Excise Notice 455a Says on Freeplays

HMRC’s Excise Notice 455a, published in December 2014 and most recently updated on 1 April 2026 to reflect the new 40% rate, is the primary HMRC guidance document for gaming providers on RGD calculation, registration, and accounting. The notice confirms that RGD is charged on gaming provider profits from remote gaming played by a customer who usually lives in the UK, and states expressly that this includes any freeplays offered. Gaming providers must check the notice for the methodology for determining whether a customer “usually lives in the UK”, which is the point-of-consumption trigger.

The notice covers the accounting period structure (quarterly), the requirement to submit returns and payments within 30 days of period end via the Gambling Tax Service, and the record-keeping obligation to retain records for four years. It does not provide a carve-out or deductibility route for freeplay promotional costs. The 1 April 2026 update revised the sections on RGD calculations to reflect the 40% rate, confirming that the notional gaming payment mechanism is unchanged at the higher rate.

The Re-wagering Exception: Only the First Use Is a Gaming Payment

How re-wagering structures interact with the notional payment rule

When the freeplay notional gaming payment rule was introduced in 2017, industry respondents raised a legitimate concern: where a customer is required to re-wager the value of their freeplay several times before becoming entitled to withdraw any winnings, applying a notional gaming payment to each subsequent spin would create a disproportionate duty liability on what was effectively a single promotional grant.

The legislative response is in Finance Act 2014 section 159(6) and the definition of “excluded winnings” in the same chapter. Where a freeplay is subject to a re-wagering arrangement, only the first use of the freeplay carries a notional gaming payment. Any subsequent play funded from excluded winnings, meaning winnings derived from the notional freeplay stake that the customer is not yet entitled to withdraw, does not itself generate a further gaming payment. The excluded winnings condition requires both that the money was won in reliance on the freeplay and that the customer is not entitled to use it other than for further participation in gaming.

“Only the ‘first use’ of a freeplay has a notional value as a gaming payment and any subsequent [plays funded from excluded winnings do not].”, HM Treasury, Tax Treatment of Remote Gambling: Consultation Document, April 2025, paragraph 4.10

The scope of the re-wagering exception is important because it is the mechanism through which operators have historically managed the duty cost of deep re-wagering structures. A freeplay with a 40x wagering requirement generated only a single notional gaming payment, the remaining 39 rounds from excluded winnings were outside the duty calculation. HMRC’s April 2025 consultation document noted that some respondents had raised concerns that the exception could be exploited, and the government’s response confirmed it was actively considering reform as part of the proposed Remote Betting and Gaming Duty.

UKGC’s 10x cap and its interaction with RGD

The UK Gambling Commission introduced a maximum 10x re-wagering cap under LCCP Social Responsibility Code Provision 5.1.1, with effect from 19 January 2026. Under this change, no promotional offer may require a customer to re-wager more than ten times before becoming entitled to withdraw winnings. This change was driven by consumer protection objectives and does not alter the RGD calculation mechanics directly. However, it has an indirect tax dimension: operators who previously relied on deep re-wagering structures to limit the number of notional gaming payments entering the duty base, by keeping excluded winnings in play for many rounds, now face a shorter re-wagering chain. Fewer rounds of excluded winnings means the excluded winnings pool is exhausted more quickly, at which point any further winnings become withdrawable and enter the normal deductible winnings calculation. Industry respondents to the HMRC consultation noted that the Commission’s cap would address some concerns about disproportionate duty liability from re-wagering, while also limiting the scope for structural exploitation of the exception.

Section 160A: Freeplays Awarded as Prizes

Finance Act 2014 section 160A, inserted by Finance (No. 2) Act 2017 section 46(5), addresses the position where a gaming provider awards a freeplay as a prize rather than as an upfront promotional incentive. Where a prize is itself a freeplay offer, whether in the form of a voucher or otherwise, and it does not fall within section 160(4) (which covers cash and cash-equivalent prizes assigned to a gaming prize fund), section 160A(1) provides that the expenditure on the prize is nil for the purposes of sections 156 and 157. This means the gaming provider cannot deduct the value of the freeplay prize from its dutiable profit on the expenditure side. The freeplay prize costs nothing in duty terms when awarded, but when used, it generates a notional gaming payment under section 159(4) on the income side.

Section 160A(2) covers the specific position where a prize is a voucher giving the customer a choice between using it as a freeplay or as whole or partial payment for another benefit. In that case, the treatment follows which option the customer actually exercises. Gaming providers who structure jackpot prizes, loyalty rewards, or VIP incentives as freeplay vouchers should ensure their accounting systems are capable of capturing which option is exercised at the point of use, since the duty treatment bifurcates at that moment.

The Rate Arithmetic: Modelling Freeplay Cost at 40% RGD

The relationship between promotional spend and RGD liability is not linear, because whether a freeplay ultimately generates a net duty cost depends on how much of the notional gaming payment is offset by player winnings in the same accounting period. However, the notional gaming payment enters the receipts side of the calculation with certainty at the point of use, the winnings deduction only occurs if the customer wins and the amount is paid out. Gaming providers operating at scale with broadly stable win rates can model the expected net RGD effect of a freeplay campaign.

Freeplay Notional Value	RGD at 21% (pre-Apr 2026)	RGD at 40% (from Apr 2026)	Increase per freeplay
£5	£1.05	£2.00	+£0.95
£10	£2.10	£4.00	+£1.90
£25	£5.25	£10.00	+£4.75
£50	£10.50	£20.00	+£9.50
£100	£21.00	£40.00	+£19.00

These figures represent the gross RGD cost on the notional gaming payment before any offset from player winnings deducted in the same period. They assume a single first-use qualifying event with re-wagering excluded winnings not entering the calculation. In practice, the net RGD cost will vary depending on the game’s theoretical return-to-player rate and the proportion of freeplay winnings that are actually withdrawn by customers within the accounting period. The table illustrates why, at 40%, the freeplay non-deductibility rule has become a first-order concern for promotions budgets rather than a minor accounting adjustment.

For gaming providers with high-volume freeplay campaigns targeting UK-resident players, the doubling of the rate means a corresponding doubling of the notional gaming payment contribution to the dutiable profit base. Operators who have not revised their promotional cost models since before 1 April 2026 face the risk of understating their RGD liability. The government’s Autumn Budget 2025 Policy Paper confirmed the 40% rate as the operative figure for accounting periods beginning on or after that date, with a pro-rating mechanism for operators whose accounting period straddles 1 April 2026.

The Proposed Remote Betting and Gaming Duty and Freeplay Reform

In April 2025, HM Treasury opened a consultation on merging RGD, General Betting Duty, and Pool Betting Duty into a single Remote Betting and Gaming Duty (RBGD). The Autumn Budget 2025 subsequently confirmed that the government would not proceed with a single unified rate. GBD for remote betting will increase to 25% from April 2027 while RGD rises to 40% from April 2026, but the structural reform question remains live. The May 2026 government response to the April 2025 consultation confirmed that freeplay treatment under a future RBGD would be subject to review, with specific attention to whether the re-wagering exception remains consistent with its original policy intent and whether it should be tightened to prevent avoidance.

The consultation document set out a clear principle that any future RBGD freeplay treatment should align the RGD and GBD approaches, so that all freeplays across remote betting and gaming carry a notional stake value. For GBD, free bets already operate on this basis: the bookmaker includes the notional value of a free bet in the duty calculation and can deduct any winnings paid out following a successful free bet as expenditure. Under any RBGD reform, gaming providers should not expect the current freeplay non-deductibility position to be relaxed, if anything, the direction of travel is toward tighter rules on re-wagering exceptions.

Industry respondents to the April 2025 consultation stated broadly that whilst the rules for freeplays are complex, they are well understood, and there was no strong case for radical reform. Most operators indicated they were familiar with the relevant legislation and the current system was workable. The government’s response acknowledged this but maintained that the re-wagering exception would be examined for consistency and avoidance risk in the RBGD design.

Frequently Asked Questions on RGD Freeplay Treatment

Can a gaming provider deduct the cost of funding a freeplay from its RGD dutiable profit?

No. The Finance Act 2014 does not recognise the cost of providing a freeplay as deductible expenditure for RGD purposes. When a customer uses the freeplay, a notional gaming payment equal to the full waived stake enters the receipts side of the dutiable profit calculation. The promotional funding behind that freeplay has no counterpart on the expenditure side. Only actual winnings paid out to the customer reduce the dutiable profit figure.

Are re-wagering winnings also subject to RGD as new gaming payments?

No, provided the “excluded winnings” conditions are met. Winnings derived from a notional gaming payment that the customer is not yet entitled to withdraw, because they remain subject to a re-wagering obligation, are excluded winnings under Finance Act 2014. Re-staking those excluded winnings does not generate a further gaming payment. Only the initial first use of the freeplay generates the notional gaming payment. The UKGC’s 10x re-wagering cap, in force from 19 January 2026, limits the duration of the excluded winnings chain.

Does a freeplay offered as a prize to a customer who wins a game round attract any deduction?

No deduction is available when the freeplay is awarded as a prize. Under Finance Act 2014 section 160A(1), the expenditure on a freeplay prize is nil for RGD purposes. The gaming provider cannot deduct that prize value from dutiable profit when it is awarded. When the customer subsequently uses it, the notional gaming payment rules in section 159(4) apply in the normal way.

Operational Implications for Gaming Providers

Gaming providers with a UKGC remote operating licence must ensure their RGD accounting systems are configured to capture every freeplay activation by a UK-resident customer and record the associated notional gaming payment at the full waived stake value. This is a distinct requirement from the systems operators use to track promotional costs for financial reporting purposes, where the accounting treatment of freeplay expense follows different logic.

Promotions teams designing welcome offers, reload bonuses, and loyalty programmes for UK players should work with tax counsel to model the RGD cost at 40% before setting freeplay values. A campaign that appeared profitable under the pre-April 2026 rate structure may not meet the same threshold at the new rate. This is not a theoretical concern: iGamingBusiness reported in May 2026 that several major operators described the adjustment cycle from the 40% RGD increase as one in which effects emerge through changes in customer economics and promotional intensity before surfacing in player behaviour.

The HMRC Gambling Tax Service is the mandatory route for registering for RGD, submitting quarterly returns, and making duty payments. Records supporting the duty calculation, including records of freeplay activations, the notional gaming payment values, and winnings attributable to those plays, must be retained for four years. HMRC may request those records at any time, and inaccurate returns attract a penalty regime under Finance Act 2014 and the returns regulations.

Gaming providers who also hold a UKGC remote operating licence should be aware that the LCCP obligation to operate socially responsible incentives, now including the 10x re-wagering cap, operates independently of and in addition to the RGD calculation rules. The two regimes are administered by different bodies: HMRC for the duty, and the Gambling Commission for the licence conditions. The structure of a promotional offer will simultaneously trigger obligations under both. Legal counsel with experience in both UK gambling tax and LCCP compliance should review any material change to freeplay or bonus architecture before deployment. For a broader analysis of the financial obligations attached to operating under a UK remote gaming licence, including how the 40% RGD interacts with statutory levy and annual licence fee costs, see our UKGC vs MGA 2026 cost comparison.

Key Resources

Finance Act 2014, Part 3, Chapter 3 (Remote Gaming Duty), the primary legislation governing RGD, the definition of gaming payments, notional gaming payments for freeplays, excluded winnings, and the section 160A freeplay prize treatment. Available at legislation.gov.uk.

Finance (No. 2) Act 2017, section 46, the amending legislation that inserted Finance Act 2014 sections 159(4), (8) and 160A, bringing freeplays into the notional gaming payment framework with effect from 1 August 2017.

HMRC Excise Notice 455a: Remote Gaming Duty, HMRC’s primary guidance document for gaming providers on registration, rate calculation, accounting periods, record keeping, and freeplay treatment. Updated 1 April 2026 to reflect the 40% rate. Published at gov.uk.

HMRC, Changes to Gambling Duties, Policy Paper (Autumn Budget 2025), sets out the operative dates and mechanics for the 40% RGD rate applying from 1 April 2026, and the forthcoming 25% remote betting rate from April 2027.

HM Treasury, Tax Treatment of Remote Gambling, Consultation Document (April 2025) and Government Response (May 2026), the most detailed public record of freeplay treatment policy, re-wagering exception design, and the government’s position on RBGD reform. Available at gov.uk.