Tax

[montmorencyt2w]

Presumably people have seen the stories that HMRC are going after Ebay sellers. Presumably only the big fish, but even so. And with the Channel Islands VAT fiddle being stopped, it seems more and more loopholes are being closed.

Not that any of this is particularly cost-effective, but I could imagine it makes useful window-dressing for government and the civil service.

Whatever the actual legal position is now, it wouldn't surprise me if in future, some bright spark, in a fit of "we must have financial reform now", against a background of reckless traders causing chaos in the markets, decided to tax all spread bet winnings (and probably not allow the offsetting of losses), even if this made no financial sense at all.

EDIT: And there is a sort of precedent for this. If your personal current account pays interest, you get taxed on it. But if you go overdrawn, and have to pay the bank interest, this is not offset against the credit interest. Tax allowance on bank overdraft interest was abolished years ago, and they didn't bring it back when current accounts started paying interest.

 

[hacks]

If Peter Cruddas (CMC Markets) and Michael Spencer (City Index) are major donors to the Conservative Party, I can't see HMRC changing the rules anytime soon.

 

[SpreadBeta]

Tax & The professional Gamblerr
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For any insomniacs or anyone with enough time to read them and who is interested, I found the following set of papers that show HRMCs, the governments and the major bookmakers discussions on if/how to tax Betfair and its users/punters back in 2005 (The PDF says 2002 but many of the documents inside it were written in 2005).

Alongside the specific discussions there are various HMRC and Industry documents discussing if & how "Professional Gamblers" could be taxed, particularly but not limited to those users using Betfair to lay-bets off, and so may have been acting as a form of "bookmaker".

This was because at the time (and this may still be the case) Bookmakers (and this includes all Spread Betting companies) pay 3% of their Gross Client losses to HMRC and so the government was already collecting some form of tax from all spread betters, professional or not. However as Betfair did not act as a bookmaker (it did not take the other side of your bet as a Spread bettor does e.g. Capital Spreads, IG) is simply provided a "service" matching individuals bets together, HMRC were not collecting any 3% of Clients Gross losses tax from them.

Be warned this is a 200 page PDF file containing many separate documents so may take a VERY long time to open / download (probably hosted on a very slow server or a server with limited internet bandwidth). Also the PDF does not appear to be searchable as it seems to contain scanned images of the documents and not the originals.


Anyway the document is at : http://www.hblb.org.uk/documents/87_Responses_to_HMCustoms&ExciseConsultation2002.pdf



Snippets of information that may be of interest that I have found (from a tax and professional gambler etc perspective) so far include :

Page 29-36 where what appears to be an HMRC discussion document covers in part "what a professional punter liable for tax is". (One example conclusion is that where a gambler buys in one market at a lower price and simultaneously sells in another maket at a higher price so locks in a profit regardless of the outcome of the event, then they are acting in a way that is HMRC would consider to be taxable as the profit is "risk free" - they even quote Graham vs Green case and explain why it would not apply. SO HERE IS ONE EXAMPLE OF A WHERE A PROFESSIONAL GAMBLER (IN THE EYES OF HMRC) MAY END UP BEING TAXABLE

Other greyer areas are also discussed e.g. If the punter has a system that when back tested over many years consistently makes a profit then they COULD be subject to tax but then later goes on to say ".....most case law has found that the existence of a system is necessary but not sufficient system for the existence of professional gambling" - hence its mentioned as a grey area in this discussion paper.

- Page 116, half way down, where an HMRC document? states "We do not tax professional gambling in the UK and to single out betting exchange users from other professional gamblers would lack a convincing rationale and would open us up to accusations of discrimination......"

- Page 106-108 where the pre-budget report is discussed (in a note written by John Healey MP) that appears to be the culmination of these discussions (on page 108) says "........high volume gamblers who have traditionally been outside the tax net"


If anyone finds any other interesting bits or quotes maybe you could post them here (as I am only skim reading it myself)

 

[Parky]

As pointed out before HMRC is very specific, Spread betting is tax free, provided it is not the primary source of income. To quote the member of staff at HMRC I spoke to "anyone who seriously thinks they can earn a living tax free in the UK is living with the fairies" and went on further to say that they were aware of this problem and would be taking action.

 

[Mata Nui]

As pointed out before HMRC is very specific, Spread betting is tax free, provided it is not the primary source of income. To quote the member of staff at HMRC I spoke to "anyone who seriously thinks they can earn a living tax free in the UK is living with the fairies" and went on further to say that they were aware of this problem and would be taking action.

HMRC may be aware of the 'problem' but even they cant change the law despite all the big talk. I have been self employed for a few years now and one of the things i learnt about HMRC very early on is they dont half talk some ****. They will threaten and openly lie about what the law says (or what they would like the law to say) but at the end of the day their record in court over issues were they think they should be right is rubish.

 

[dazzer_fx]

As pointed out before HMRC is very specific, Spread betting is tax free, provided it is not the primary source of income. To quote the member of staff at HMRC I spoke to "anyone who seriously thinks they can earn a living tax free in the UK is living with the fairies" and went on further to say that they were aware of this problem and would be taking action.

As pointed out previously in this thread, if HMRC were to charge tax on spread
betting then they would obviously have to allow the same people to offset
their losses. This would make them substantially worse off overall and that is not
going to happen. So given your example, if it was someones sole income and they
made a loss in that year, they would be due a refund cheque!! Do you honestly
think that would happen.

 

[Parky]

There is no law to change, laws with regards to Spread Betting are specific to causual betting, where it is not a primary source of income. Laws with regards to paying tax on primary sources of income are different and dont need changing.
I guarantee that any Spread Betting company you are using is very specific in stating that all users should take their own tax advise for this very reason, they do not want to get caught when HMRC comes for you. Not if but when, if you think you are safe then good for you, but nobody can truly expect to earn a living and pay no tax and if you do say hello to the faries.

 

[Parky]

dazzer-fx,
Normal traders, foriegn exchange, derivatives, equities traders who trade the markets directly do exactly that, pay taxes and claim back losses. Spread betting on the derivatives markets is a cloak or overlay designed to make people believe they dont have to pay tax. If all you are doing is loosing then lets face it you will not be doing for a "living" for long will you?

 

[neil324]

Well there are reports on here of members being pursued by HMRC and settling.

Maybe HMRC think that the really good traders won't lose, so will never offset. And as it's being done on a individual basis where maybe the performance is judged.

Seems like a calculated risk by HMRC.

 

[SpreadBeta]

Although interestingly in the betfair document I posted a link to yesterday, HMRC was advising the government that they did was not wanting to go after betfair users (even if they had over 50000 bets a year) using existing legislation and saying that these bettors were "in business" so need to pay income tax.

This seems to be because they did not want to have to define what "in business" means re:gambling because they said that this definition could be used by other bettors to claim back losses if they also fit the definition.

I also could not find a single reference in all the discussions on the way HMRC wanted to tax the larger betfair punters to SOLE INCOME entering their thinking (probably as the 1925 case law they would have to overcome did involve someone whose sole income was from betting and the courts found that they still did not have to pay tax on betting winnings...)

HMRC were in fact looking at creating a new definition of what is a bookmaker (as a classification distinct from professional gambler) so these high volume users on betfair could be classified via new legislation as bookies and so be subject to the 15 percent of gross profits bookmakers get charged. They seemed to be jumping through hoops to tax volume punters in this new way with new legislation being considered rather a than use the existing legislation, and try to get tax out of these people via the professional gambler and income tax route.

I can only imagine that they were considering all these new rules and associated effort that they were having to put in, as they were not happy to use the professional gambler and income tax approach.

However in the end it appears that they backed away from taxing individual volume punters on betfair (some who they said they knew were making over £100k per year!!!!!) and instead levied a tax on the commissions collected by betfair itself from the betfair users, so they got the tax they wanted that way instead.

I just thought that the "internal HMRC thinking" they went through (and was mentioned in the docs) explains why they have not very ACTIVELY gone after all successful / professional gamblers since.

They will always try it on with some successful gamblers and if they can get some tax off professional gamblers (or settle on an amount) I am sure they will. I Guess it's not until they are likely to be challenged in a tribunal or in court using case law that they may back down in these cases.

 

[neil324]

They are obviously covertly pursuing successful individuals. Knowing they can not afford a court case.

But from a personal perspective is it not better to declare your position if it's your sole source of income and await the decision. After all you pay a premium to spread bet for the tax advantage.

Just curious, is there also not a legal position to declare it any way. After all tax evasion can incur a 100% fine.

 

[Mata Nui]

They are obviously covertly pursuing successful individuals. Knowing they can not afford a court case.

But from a personal perspective is it not better to declare your position if it's your sole source of income and await the decision. After all you pay a premium to spread bet for the tax advantage.

Just curious, is there also not a legal position to declare it any way. After all tax evasion can incur a 100% fine.

No. No legal position to declare it. Just like there is no legal position to declare scratchcard winnings. There is no place on a self assessment form for gambling income anyway.

 

[neil324]

No. No legal position to declare it. Just like there is no legal position to declare scratchcard winnings. There is no place on a self assessment form for gambling income anyway.

Isn't there a box that says 'any other income'

 

[Mata Nui]

Isn't there a box that says 'any other income'

Yes, there is. BUT Income is defined in the notes so it tells you what things should go in there. You also cant explain where that income came from. It is for stuff like income from property, investments etc. To be honest i just let my accountant do my filing online now so it has been a while since i looked at the form.

The bottom line is that you have a legal duty to declare any income that may be subject to UK tax. You dont have to declare anything you know not to be subject to tax and at the moment the law is quite specific. SB winnings are the same as lottery or scratchcard winnings and not subject to income or CG tax in the UK. There is of course nothing stopping you putting any winnings in that box and if you do it will very probably be taxed.

What a HMRC rep will tell you and what they will try to persue in court are very very different.

 

[SpreadBeta]

Neil, the any other income box refers to any other taxable income (as I understand it) and the notes say you don't use this for income from Isas, gambling etc. so u can't use that unless you as the self assessed taxpayer are actually declaring the income as taxable. = catch-22

I think the only place u could put this info is in the additional info box which is free text entry and not used in the calculation of tax itself. That way u could argue that u informed the revenue of the gambling income if they ever challenge it in later years.

Re the SOLE Income criteria tha keeps getting raised may be something that various HMRC staff mention (to persuade u to pay tax?) but the case law that HMRC host on their own website SPECIFICALLY concerns an individual who'se SOLE income came from gambling and the courts found he was not liable to pay tax as gambling even when it was his only income was not considered as a business./ trade.

 

[Lord Flasheart]

As far as I'm aware, there hasn't been anyone who makes trading profits (i.e. they're not profiteering from teaching etc) who has been forced to pay taxes on their spreadbet gains. If there has been, and I could be wrong, please name that person. Until then, those earnings are tax free whether it's the main source of income or not.

Someone selling signals can be taxed. A poker player who is sponsored can be taxed, because they are receiving income that's not betting.

all correct. If you earn more from trading than anything else then by law you should pay tax,but as far as I know the law has never been tested and would open up a huge can of worms about betting shops etc,etc. If they did take you top court im sure there would be many willing to fight your corner,bookies,other traders,etc,etc.Dont even giove it a second thought,just worry about how to make money at this game.

 

[Mata Nui]

Neil, the any other income box refers to any other taxable income (as I understand it) and the notes say you don't use this for income from Isas, gambling etc. so u can't use that unless you as the self assessed taxpayer are actually declaring the income as taxable. = catch-22

I think the only place u could put this info is in the additional info box which is free text entry and not used in the calculation of tax itself. That way u could argue that u informed the revenue of the gambling income if they ever challenge it in later years.

Re the SOLE Income criteria tha keeps getting raised may be something that various HMRC staff mention (to persuade u to pay tax?) but the case law that HMRC host on their own website SPECIFICALLY concerns an individual who'se SOLE income came from gambling and the courts found he was not liable to pay tax as gambling even when it was his only income was not considered as a business./ trade.

Yep. the sole income thing keeps getting mentioned here but its pretty much a myth. I believe HMRC have argued (or this is what is being said on here) that if it is your sole income then it is a business but nobody has ever come on here and said they know of a single case that has been tested in court where HMRC have won under those criteria. If that was true then anyone could reclaim the cost of computers, home as office and a host of other expenses against SB profits. Or more importantly against losses as SB could be classed as a business activity regardless of it being sole income or otherwise. Imagine how easy that would be and how much it would cost HMRC.

HMRC are all bluster and BS. In the early days of IR35 they brought cases against anyone they thought they could get money out of. They lost almost every one. The result is they now bring very few cases under IR35 as any the investigate are all obvious slam dunk ones. Tax is very taxing.

 

[SpreadBeta]

I think if you were ever challenged by HMRC then the very first thing you should do (which has been suggested a couple of times on these forums) is to lay out in a formal letter to HMRC ideally written by an Accountant specialising in Trading, spread betting and Tax (e.g. Mark Faherty, Senior Tax Manager at Trio Accountancy Services Ltd......who has also explained in these forums why Spread Betting is not taxable (under the name "Markyf") the reasons why you think there is no tax to pay.

For Example (Remove what does not apply):

- I do this as a Hobby
- I am not and have never been FSA Registered
- I have never held a position in a Trading position with any Company or carried on Trading Activites (i.e. Partridge v Mallandaine [1886] so I am not carrying on my "vocation" just using SB as the medium)
- I am not doing CFD or other types of trading alongside my Spread Betting in Similar instruments (where HMRC can try to argue that your Spread Betting is therefore acting "in concert" or as a Hedging/extension of your true trading activity and so can be linked to it for tax purposes. .e.g. If you buy £10 per point in BP via SB and short 2000 shares of BP via CFD's they can try to argue linkage)
- I do not hold any trading qualifications
- I do not undertaking any Arbitrage type activities where I am locking in a risk free profit (by buying low on one Market / Platform and also Selling High on another - This usually relates to Sprorts Spread Betting where differences between different bookies prices can be exployted for a risk free gain - HMRC can argue this is therefore not gambling but an Arbitrage Business you are running.
- Based on your own Tax law reown v Compston [1937] and Burdge v Pyne [1968] I am not involved in any way in the organisation of the betting process or infastructure (thats what the bookie does) and so I am operating simply as a "punter"
- And most importantly how you belive my case differes from your own tax law re:Graham v Green [1925] at BIM22017 - Trade: Exceptions & alternatives: Betting and gambling - the professional gambler where the punters "sole means of livelihood came from betting" there was found no tax to be paid as betting did not qualify as a Trade (unless you were in involved in the organisation & infastructure of the betting activity)

It is only if you ever receive a written response from the above from HMRC explaining why they belive all of the above do not apply in your case and they are asking you to pay tax (They will need to lay out their reasonong before it can go to a Tribunal later anyway) that I would worry.

There have been a couple of people who have said that they have written a letter similar to the above when asked to pay tax on betting income and that HMRC have decided upon reciept of such a letter (and internal contemplation) that maybe ther is actually no tax to pay. If the letter comes from a regognised Tax Accountanat with specialty in this area it seem to help them come to this "no tax to pay" conclusion quicker, unless they have a specific reason (outside the norm) for requesting tax from you on betting winnings.

 

[hacks]

Suppose someone won the lottery and were living off the money and had no other source of income. Would HMRC now charge income tax on the winnings? Of course they wouldn't and they can't, so what makes HMRC think they can charge professional spreadbetters income tax when that is their sole income?

 

[BobbyBB]

HMRC operates like a business, it therefore has to allocate its resources where the profit is. SB is a very small industry, and the long term winners are even smaller than that, probably in the 5% level if that. The key here is LONG TERM WINNERS. No doubt there are plenty of people that turn a small amount into a large amount, then turn that large amount into a small amount.

So going after successful SB people might be something they'd like to do if their resources and personal had no limit. But in reality it's not going to happen.

Also, before you go into battle, know your enemy. So the taxman goes into battle against a big time SB winner, let's say the guy has made millions over the years. To me that looks like a formidable opponent because with that sort of money comes the finest and most brilliant tax barristers. I don't know about you, but I wouldn't like to take those guys on, would you? I doubt the taxman would either.

Then you have the problem of the taxman potentially winning the case. Great on one hand because he collects tax from a certain amount of winners. Now the big losers see this and this gives them a very credible idea - go to court with their highly paid tax barristers to have their losses offset.

So if you're the taxman what do you do, if you;re sensible you forget about SB and instead go after both easier and more profitable meat.