Novembers Traders Mag Article 'Tax on Spread Betting'

[SallyT]

Clem Chambers writes: 'Inside Spread Betting' (page 20)

“Spread betting has a unique feature that is attractive to everyone: the profits are tax free. There is no tax on betting profits in the UK and spread betting takes advantage of this fact to offer a way of playing the markets without the drawbacks of having to send a large slice of profits to the taxman.

This is not universally true, however, because if you are a professional trader, in the same way as if you are a professional gambler, the fact that you make your living from the job means this exemption does not apply. Happily for most of us, this is not a full time job so we can rest assured that should our positions pay off then our profits are safe”.

__________________________

I’m sure that the thorny problem of paying tax on spread betting (by those who have put their heads above the parapet and tell the tax man what they are doing) has been discussed before, albeit some time ago.

Since Clem makes his comments so conclusively, has anyone fallen foul of this rule yet? Or does anyone know of a test case via legal proceedings on this subject by the Inland Revenue?

If you are a professional trader and the above is in fact true and not just a ‘hear say’ comment by Clem, why would anyone use a spread betting company anyway? Trading via a direct broker would have better spreads and lower commissions. Business expenses & commission fees could be off set against tax.

Are there any pro traders amongst our flock that don't pay tax on spread betting?
Any Legal I.R. Accountants out there who can categorically say that Clem comments are true?

Any thoughts Guys & Gels.

Sally.

 

[FTSE Beater]

Hi Sally

I have been wondering the same thing. Has it been challenged?
Speaking to Nadine who talked at the traders day on tax matters, she said yes, it would be taxable. It would be under a ruling that came from the tax free gambling legislation.
I have a feeling that the spreadbetting companies will have to make a quick U-turn on their "tax-free" promotion once something goes to court - which in time I'm sure it will.

 

[The Beyonder]

Hi

Yes, this topic has been discussed extensively elsewhere on this board with no definitive conclusion.
However, when i was s/b, I contacted the IR about this very issue. The man didn't even know what it was
After explaining, and explaining it was a full time "job", he commented it'd probably be taxable but should explain fully on my tax return. However, I moved to direct access before I could take it further and never got to the bottom of it.

As for why people still use it, I can only imagine they've been seduced by the no-tax status mentioned on s/b sites and think it applies in all situations.

I have a feeling that the spreadbetting companies will have to make a quick U-turn on their "tax-free" promotion

It's interesting that the s/b sites don't distinguish between s/b on top of a job as opposed to s/b AS A job. Though their "tax status may change" line could be their get out clause.

 

[Alphabet]

I was at the traders day and I got the impression from Nadine that if the tax man wanted, he could also class your trading activities as a business and charge you tax on any profits. However it is all a bit confusing and as I trade part time I'm sure (well I hope) the tax man is not interested in me

 

[LION63]

I was under the impression that a 'Professional Gambler' for tax purposes is an individual that places and lays (takes) bets.

 

[DaveJB]

It's actually IMO quite simple, and Nadine touched on this at the Traders' day in passing -
if you make loads of dosh from SB you will end up being taxed on it in all likelihood, the IR want their pound of flesh. As you move from tax office to tax office, in fact from tax inspector to tax inspector, their individual assessment is what you end up paying, unless you are prepareds to go to the EU or House of Lords - many believe, erroneously, that the law for one must apply to all - the IR only have to show that you aren't like everyone else (90%+ lose, so to be arguing the point puts you in single digits to begin with) to treat you as a one off.
SB isn't taxed, and some may well make a living at it without paying tax - you will, however, continually risk paying tax if you keep winning as professional gamblers DO already despite endless fairy stories form the ever hopeful.

The UK (and, to be fair, worldwide) tax systems exist to redistribute wealth - the older and crankier I get the closer I get to believing it's a way to stop the brain dead from starving while those who read beyond the TV pages pay to keep the other 90% alive - but NO tax system in the UK is going to let you live the life of Reilly without slapping a wodge of tax on if you make a habit of it. Appeals to fairness are, I believe, judged primarily on artistic merit - a swan dive by 'Outraged of Tonbridge Wells' can get 9 points on a good day - Clem etc are right SO FAR for most people, and most peolle will continue to trade SB tax free because that way the IR doesn't lose money.... tax on SB because it is your business means you can get relief on costs - esignal $200+ a month for example, for 90%+ the IR gets more by not taxing returns and therefore not allowing costs to be claimed.

I (spread) Bet you a consistent BIG winner gets taxed.....

Dave

 

[LION63]

Having read the article in the Traders magazine, I see nothing to alter the fact that it is the Professional Trader or Professional Gambler that ends up paying taxes on profits made whilst spread betting. An individual who sits in his or her home placing 'bets' on shares, indices or commodities would not be liable to tax on the profits irrespective of the amounts involved.

However, if the party concerned, were to take bets from others and then hedge them by placing bets with a spread betting company, he/she would be deemed to be a professional and thus be liable to tax. Likewise, if an individual runs portfolios for friends/family and charges them for the service and at the same time trades through a spread betting firm on his own account, the Inland Revenue would be likely to view that person as a professional.

The problem of definition really lies in the fact that when a person is called a 'Professional Gambler', we tend to view that person as a punter who makes a living from placing bets. However, an individual is only a professional gambler when he/she lays bets.

 

[JonnyT]

This is what happens.

The Inland Revenue say this is a business and you owe them £x in Tax.

You then have to go to court.

Defending against the IR will in all likelyhood cost > £100,000

The defendant simply pays up.

JonnyT

 

[zuke]

Having read the article in the Traders magazine, I see nothing to alter the fact that it is the Professional Trader or Professional Gambler that ends up paying taxes on profits made whilst spread betting. An individual who sits in his or her home placing 'bets' on shares, indices or commodities would not be liable to tax on the profits irrespective of the amounts involved.

However, if the party concerned, were to take bets from others and then hedge them by placing bets with a spread betting company, he/she would be deemed to be a professional and thus be liable to tax. Likewise, if an individual runs portfolios for friends/family and charges them for the service and at the same time trades through a spread betting firm on his own account, the Inland Revenue would be likely to view that person as a professional.

The problem of definition really lies in the fact that when a person is called a 'Professional Gambler', we tend to view that person as a punter who makes a living from placing bets. However, an individual is only a professional gambler when he/she lays bets.

As an ex Tax Accountant, I concur with the view that the IR cannot deem your gambling winnings as INCOME taxable. This is irrespective of how large the bets are. The man or woman who sits in the bookies all day gambling on horses or dogs is no different from the man or woman that sits at a screen and gambles on indices, futures etc.

My own personal defence, when challenged, has been to say (quite truthfully) that it is a full time hobby. The IR has no riposte to that. As already noted that problem lies where you are are laying bets or indeed spread betting with money from others.

 

[Bigbusiness]

If a professional gambler goes to horse race meetings, why would they keep records of their bets to show the tax man? Its all cash in hand and I have never been asked for my name. I just hand over the cash, watch my horse fall over and go home. The few times I have won, there is no way the tax man would find out, unless they now double up as turf accountants.

 

[tradingknowledge]

Say that to the French IRS

You know when they will really want to tax it's easy they change the law. As long as they need to maintain a bubble they don't.

As an ex Tax Accountant, I concur with the view that the IR cannot deem your gambling winnings as INCOME taxable. This is irrespective of how large the bets are. The man or woman who sits in the bookies all day gambling on horses or dogs is no different from the man or woman that sits at a screen and gambles on indices, futures etc.

My own personal defence, when challenged, has been to say (quite truthfully) that it is a full time hobby. The IR has no riposte to that. As already noted that problem lies where you are are laying bets or indeed spread betting with money from others.

 

[chump]

"This is what happens.

The Inland Revenue say this is a business and you owe them £x in Tax.

You then have to go to court."

no you don't , but if you say it as though it is a fact then plenty will believe it anyway

 

[DaveJB]

I admire the faith of those who believe that the IR is consistent, let alone that there are rules that are applied to determine whether you are professional or not... makes you wonder how come professional horse race gamblers end up being taxed, as I'm petty sure they don't lay odds - must be some sort of voluntary arrangement I suppose, where the gambler says 'fair's fair' and pays up from altruistic tendencies forcing their way to the surface.

If you honestly believe that you can SB for a living for as long as you like and not end up paying tax when the IR get wind of it then fine, I wish you luck - I actually believe this occurs, but not because the IR agrees with the sentiment here. (They're not that competent in some areas).

I've no axe to grind here, I do think anyone making a living from SB needs to provide themselves with the funds to fight their case (IR has a bottomless pit for legal fees - do you?) and to pay back taxes when they decide you owe them... and Zuke, I know 2 other tax accountants who disagree with you.

Dave

 

[LION63]

The Law is the Law and the proceeds of gambling are not taxable. I have known a few 'Professional Gamblers' in my time and the only ones that paid any taxes on their winnings were the ones that doubled up as bookies.

 

[sidinuk]

If a professional gambler is, say, playing poker against other people (not a bookmaker) for a living then of course they should pay tax on any net profits. If a 'professional gambler' is betting on the horses or the Dow Jones index against a bookmaker then the bookmaker will pay the tax.

As far as I can make out playing poker on a website could be construed as a trade and profits taxable, you are playing with other punters and the website merely facilitates that - much like a futures exchange. Similarly with the betting exchanges - they only act as middle men to allow punter to punter odds trading. Someone making a living from betting exchanges or poker websites, where they are playing against other punters, are most likely to be taxed individually.

Where a bookmaker takes the other side of your bet, like a spreadbetting firm does (even if they lay it off in the underlying market), it is gambling. The bookmaker or spreadbetting firm will include the betting tax in the odds or the spread.

Basically if you are spreadbetting I wouldn't worry too much about tax - your bookie is already paying it for you. You should, however, be worried if you are making a profit from betting exchanges or poker - you might well be liable for some tax at some point in the future when the law is clarified.

 

[Roberto]

As an ex Tax Accountant, I concur with the view that the IR cannot deem your gambling winnings as INCOME taxable.

I'm sorry, but this is just bo**ocks, it really is! There are people who have to pay INCOME tax on horse-race winnings, and there's loads of case-law on the point.

I'm not going to repeat everything I've said in all the other threads where this subject's come up, but rely on this man's opinion at your peril!

(And anyway, what's an "ex Tax Accountant"?! For that matter, what's a "Tax Accountant"? All the chartered accountants I know, including the two who specialise in gaming, would refer to themselves simply as "accountants". Are you a chartered accountant? What are your qualifications? I think that if you're really trying to offer a professional opinion, as you so clearly say by referring to yourself in that way, we should be told!)

 

[The Beyonder]

I'm sure you've quickly gathered from this thread Sally, that the answer is by no means conclusive.

 

[SallyT]

Roberto,

Do you know of any case law on spread betting & traders?

If none exist................

I guess the answer is that until someone takes the IR on, each case will stand or fall on its merits or otherwise and/or case law and/or succinct legislation.

Sally.

 

[sidinuk]

The current inland revenue assessment of the situation is summed up in this part of the inland revenue inspectors manual:

http://www.inlandrevenue.gov.uk/manuals/bimmanual/BIM22015.htm


Basically Graham v Green [1925] would seem to be the relevant case law of this issue. A bookmaker is carrying on a trade whereas a 'professional gambler' is carrying on a habit. A trade is taxable, a habit isn't.

Until the law is changed, gambling profits are tax free for the punter. The chancellor did announce a review of betting exchanges in the last budget though, so things could change. I still don't think that would affect the average spreadbet punter though.

 

[Roberto]

Roberto, Do you know of any case law on spread betting & traders?

I don't, and I believe that there isn't any (certainly there wasn't last time I asked, and that was only a few months ago). I agree with your conclusion as stated in your post above.

Still, my feeling is that we're a long way off anyone actually getting an income tax assessment for SB winnings. And for that to happen, it's going to have be a really significant case that the Revenue is willing to litigate. I think we might even be talking about years and years away.

This can only really develop into a problem for someone whose _sole_ income is SB profits.

There's nothing to stop anyone from earning a subsistence-level of £15,000 or so from any other source at all and keeping their SB profits of £150,000 tax free. On that (implied) point, our friend the "ex Tax Accountant" who posted above, has a point. It's not the amounts of money that matter. It's whether or not it's (to all intents and purposes) your _sole_ income.

My own belief (and that of the 2 specialist gaming accountants and the two Tax Inspectors with whom I've actually discussed it, which is of course how it became my belief!) is that if anyone gets to a position with SB profits where they're really worried about it, they might be well advised to become the UK-resident employee of their own nominee-owned offshore company, and pay the income tax on a small nominal annual salary which the company pays them. This is neither as complicated nor as difficult as one might imagine, but it does cost a bit administratively. (I'm considering it for the tax year 2005/6, as you might surmise from my interest in the subject!).

Sally, if you don't mind, I will PM you about another matter raised in one of your posts elsewhere.