Spread betting and Personal Income Tax

Hi All,

I am just starting to trade Spread bets as a UK resident. I have read that this is still free of Income Tax.
If this is going to be my only form of income how should I be registered with HM Revenue and Customs?
Do professional Spread betters register themselves as self employed and then only pay NI?

Many thanks

AK

You're possibly making a fatal mistake and assuming that you're going to be making money. Making money from spread bets for a living is one hell of a touch job and the odds of you, me or anyone else doing it are very very slim.

So don't worry about the tax angle, that is the LEAST of your worries.

Instead, concentrate 100% of you efforts on making money, then worry about your tax situation.

Not having a go at you, just spelling it out as it is. I'd give myself the same advice

Thanks appreciated I fully realise that making a living from this is damn difficult. This is not my question though.
I still need to know how I should be registered with Inland Revenue and where it leaves me with regard to NI contributions.
I don't want to be on the wrong side of the law. Presumably the authorities would want me contributing to NI still??

THanks

AK

happytraveldog said:

Thanks appreciated I fully realise that making a living from this is damn difficult. This is not my question though.
I still need to know how I should be registered with Inland Revenue and where it leaves me with regard to NI contributions.
I don't want to be on the wrong side of the law. Presumably the authorities would want me contributing to NI still??

THanks

AK

Click to expand...

Please follow the link

cheerios

Magos

http://www.trade2win.com/boards/trading-faq/47394-trading-facts-taxes-uk.html

happytraveldog said:

Hi All,

I am just starting to trade Spread bets as a UK resident. I have read that this is still free of Income Tax.
If this is going to be my only form of income how should I be registered with HM Revenue and Customs?
Do professional Spread betters register themselves as self employed and then only pay NI?

Many thanks

AK

Click to expand...

As long as you are purely gambling with a spread betting firm then there shouldnt be any need to even contact the tax man as you arent self employed. Full time gambling against a bookmaker is not classed as self employment.

If you spread bet and those bets are related to taxable things then your spread bets might become taxable also. For example you sell spread betting seminars, or you use spread bets to hedge real stock or commodity positions you have in a normal brokerage account.

Otherwise you can enjoy your pofits 100% tax and NI free.

You should consult a tax expert if you think your spread bets could be liable for tax.

happytraveldog said:

Thanks appreciated I fully realise that making a living from this is damn difficult. This is not my question though.
I still need to know how I should be registered with Inland Revenue and where it leaves me with regard to NI contributions.
I don't want to be on the wrong side of the law. Presumably the authorities would want me contributing to NI still??

THanks

AK

Click to expand...

You don't need to do anything, just like if you had started going to the bookies to make a living out of the gee-gees.

I have been reading about this topic recently as well. I have yet to find a forum post that definitively states that HMRC has an uniform position on this issue, people say it is wholly tax free then others say it isn't. I believe this is an issue which excites a lot of passion and the arguments used contain layers of subtlety and context than can leave you quite unsure.

I personally like the comment made by 'nojmeister' at the top of this page on Taxation Web - TaxationWeb Ltd • Professional Gambler & Income Tax : Income Tax - 3.

I find myself asking a hypothetical question. On the one hand, Is it possible that HMRC is saying to people who gamble/bet now and again for a spot of fun, we don't mind you having fun and we could tax your income but we're not going to. Though on the other hand if you are going to approach this as a business then we think you should pay tax just as any other business would do.

Were an imaginary person to put up £1 million to say ' I would like a court ruling on this topic and I am prepared to cover mine and HMRC's legal costs to get it' then I think this topic would be a lot clearer. Until that point it would be prudent to seek professional advice.

Good luck with your trading.

jorune

see it from the horse's mouth Trade: exceptions & alternatives: betting and gambling: introduction

good trading

jon

I have seen that note in other threads, there is also Trade: exceptions & alternatives: betting and gambling: spread betting which is put in a manner that does not entirely clear it up for me. The phrase 'Whether or not a particular spread bet is taxable will depend on the terms of the contract and the economic substance of what is done' is open to interpretation.

When I look at the first page of the Taxation web thread I posted above there is a comment by user 'belsizepark' that quotes additional cases and rulings. TaxationWeb Ltd • Professional Gambler & Income Tax : Income Tax. So I am still unsure.

I suspect what I would want to see is a letter from an Inspector of Taxes that clearly states his or her position on this topic.

I guess what would also blow away the smoke and mirrors around this topic is for the original posters on this thread and others to come back and state what they did and found. Thank you for your reply.

jorune

The IR will ALWAYS reserve their position and you will never get the absolute certainty you seem to be seeking.

The key element is To be taxable, the spread betting wins must come not merely from an opportunity presented by a trade, they must arise from the carrying on of that trade. . This means that there must be more to one's activity than merely placing bets for it to be taxable and/or that one's activity is organised in such a way as to take it much further than an opportunity presented by a trade.

For example, a bookmaker goes further than "betting" by not only being in the business of providing the facilities for people to bet with him, but also by arranging his activities to ensure that he will, in aggregate, make a profit regardless of the outcome of individual "bets".

The only danger you face under current legislation is if your spread betting is associated with other related activities - eg: a tipping service - or if you have a system that guarantees you a profit no matter what. 'Course, if you have such a system you wouldn't give a toss about paying any tax :cheesy:

good trading

jon

barjon said:

jorune

The IR will ALWAYS reserve their position and you will never get the absolute certainty you seem to be seeking.

The key element is To be taxable, the spread betting wins must come not merely from an opportunity presented by a trade, they must arise from the carrying on of that trade. . This means that there must be more to one's activity than merely placing bets for it to be taxable and/or that one's activity is organised in such a way as to take it much further than an opportunity presented by a trade.

For example, a bookmaker goes further than "betting" by not only being in the business of providing the facilities for people to bet with him, but also by arranging his activities to ensure that he will, in aggregate, make a profit regardless of the outcome of individual "bets".

The only danger you face under current legislation is if your spread betting is associated with other related activities - eg: a tipping service - or if you have a system that guarantees you a profit no matter what. 'Course, if you have such a system you wouldn't give a toss about paying any tax :cheesy:

good trading

jon

Click to expand...

Jon,

It appears that a distinction can be drawn between the betting by an individual just for themselves and the same practice but for the intention of offering it to other people i.e. better vs bookmaker/tipster etc. I am not a trader, as of yet, but I have been studying its practice.

I wonder if a method of hedging affects this arrangement?

If I were to hedge each trade in the opposite direction, i.e. If I were to go long FTSE on a spreadbet and then short on a binary bet at the same time as a hedge (cutting the binary bet off as and when the spreadbet went into profit) then while this would not as you say

in aggregate, make a profit regardless of the outcome of individual "bets”

It would help improve the overall risk to reward ratio of a trading campaign. For example the figures imagine two scenarios. Both have 100 trades, both a win/loss ratio of 35 wins to 65 losses. The system is designed to catch trends rather than scalp.
The first figure is the risk to reward ratio of each trade, the second the number of times that risk to reward happens. The risk figures are rounded off to illustrate the idea, commissions/spread would of course have to factored in.

1st Example

R= Risk to reward ratio
Total profit = R 1*15 + R 3*9 + R 5*7+ R 10*3 + R 15 *1
15+27+35+30+15=122

Total loss = 1*46 + 2*14 +3 *5
46+28+15=89

Overall profit 122-89=33

2nd Example

This imagines the profits and losses are reduced by the action of hedging. I introduced a level of 0.2 profit and 0.3 loss to reflect the imperfect nature of hedging/random prices/imperfect execution/etc. The figures of 0.2 and 0.3 are guesswork and are not based on any dataset. After the hedged amount was cut I thought to reduce by 1 all the profit/losses beyond this figure to reflect this adjustment. Again this may be naïve.

Total profit = 0.2*15 + 2*9 + 4*7 + 9*3 + 14*1
3+18+28+27+14=90

Total loss = 0.3*46 + 1*14 + 2*5
14+14+10=38

Overall profit 90-38=52

If we then applied a +/- variance of 20% to the figure of 52 to create a range of expectations (41 - 63) we still appear to be ahead of the original figure of 33. So while there is no guarantee of profit there is a suggestion that a better return on the capital can be made.

The usual tax people get involved in (even in a one off basis) is capital taxes. Where a person makes a profit from a disposal (buy/trade something then sell it) the tax we need to worry about is CGT (Capital Gains Tax). So this would be a second property, stocks and shares, oil paintings etc.
Now you would also think this would apply to a spread bet on stocks and shares. After all you are taking a position on a share and hopefully making a profit.
However, as we all know, there is no CGT on betting. This is irrefutable.
As a spread bet is just that, a bet, there is no CGT on SB.
Now the possible problem occurs when a trading situation becomes your means of income or a "job". For example if you started buying and selling houses regularly you could decide to have your capital taxes exchanged for income tax.
So the only area of doubt regarding betting and in particular spread betting is; could this be considered by the IR as an occupation or trade and therefore subject to income tax and NI?
You can see that until this becomes relevant to your own situation it is not worth fretting about!

raysor said:

Now the possible problem occurs when a trading situation becomes your means of income or a "job". For example if you started buying and selling houses regularly you could decide to have your capital taxes exchanged for income tax.
So the only area of doubt regarding betting and in particular spread betting is; could this be considered by the IR as an occupation or trade and therefore subject to income tax and NI?
You can see that until this becomes relevant to your own situation it is not worth fretting about!

Click to expand...

I think your point about means of income or 'job' may be a key point. I found another website with commentary on this topic So is Spread Betting really tax-free?. This points out a number of different scenarios where tax may or may not be payable.

From a philosophical viewpoint it does seem reasonable to me that where a person derives a primary income from betting either as an individual with no contact with anyone else or through a trade such as a tipster or bookmaker they would pay tax.

I can also imagine a situation where successful traders get professional advice and have the matter cleared up one way or the other, tax or no tax; And part of the advice is not to discuss their tax solution. Never get between a mother bear and her cubs, Never get between a govt and its taxes. You could lose both times.

As I have been looking into trading in the near future, this question may be relevant to me.

Happy trading.

hi jorune, i wondered about this myself and have been very conscious of it but the link you provided actually puts my mind to rest, it doesnt stir anything up as far as i can see. the last paragraph says it all really

Q: Can income tax be claimed on losses in spreadbetting?
A: No, you don't pay tax on your winnings, so you can't claim tax on any losses...

surely this and gabling isnt taxable in the uk stuff is enough. if i get to the stage im winning though i wont mind paying tax. lol

Melissa,

Looking at the first question on that page it suggests that it is possible to be in a position where you could pay income tax on betting (spread, binary, etc).

I think a hypothetical example would be useful to imagine a scenario where this could happen.

If there was a person who in a tax year did not pay tax through the PAYE system, i.e. unemployed / retired and won enough money through betting, on a continual basis, for it to be their primary income that person would be a professional gambler and therefore:
a) was in a trade and self employed
b) liable for income tax

This contrasts with barjon’s comments above where he suggests that a bookmaker/tipster does more than a bettor, they get extra income from the spreads, facilities, subscriptions, etc. This extra activity makes their gains taxable.

Perhaps only the careful gaze of a tax professional can advise our hypothetical person as to what tax they are really liable for.

If in doubt consult a professional.

jorune said:

If there was a person who in a tax year did not pay tax through the PAYE system, i.e. unemployed / retired and won enough money through betting, on a continual basis, for it to be their primary income that person would be a professional gambler and therefore:
a) was in a trade and self employed
b) liable for income tax

Click to expand...

Gambling against a bookmaker (or spread bet firm) even if you do it full time is not regarded as professional gambling, its regarded as habitual gambling. The reason is that the bookmaker is the professional in this gambling relationship and not the punter. Even if the punter manages to beat the professional bookmaker with some sort of system, it still doesnt make any difference. Neither does it make any difference if its your main source of income or not.

However, full time time betting against other members of the public might class you as professional gambler. But this is not something your typical spread better needs to worry about.

You can also look at it another way, lets change the OPs post a bit.

Hi All,

I am just starting to bet on the National Lottery as a UK resident. I have read that this is still free of Income Tax.
If this is going to be my only form of income how should I be registered with HM Revenue and Customs?
Do professional Lottery betters register themselves as self employed and then only pay NI?

Many thanks

Click to expand...

This thread illustrates one of the aspects of the Internet and forums such as this, you can find multiple locations that will declare contradictory positions with an air of certainty. While Wikipedia and the like are fine for general reference they are not so useful if you want the information to be accurate, relevant and timely.

I did some further searching and came across this page on the HMRC site - Trade: exceptions & alternatives: betting and gambling: the professional gambler. That has two quotes which bare a mention here:

"The fact that a taxpayer has a system by which they place their bets, or that they are sufficiently successful to earn a living by gambling does not make their activities a trade. "

and further on...

" This shows that having expertise or being systematic (‘studying form’) is not enough to create a trade of being a ‘professional gambler’. "

I also came across another page which is about poker but covers the same case law. I mention it here for reference - Poker and The Taxman - Poker Hendon Mob.

From what I can see on this and other forums is that the while laws are drafted to be in clear and precise language their interpretation and practice is not always certain and predefined. Therefore it is necessary for each of us to consider our own unique tax situation and act accordingly.

Thanks for your comment.