Self-Employed Sports Traders

[Cardano]

Just wondering if anyone can advise the pro's and con's of being a self-employed Sports Trader from a tax perspective ?:

[Dallas]

If you do a search on 'Tax' as a topic title you'll find several deep threads with plenty of advice from users

[firlandsfarm]

As an old retired tax (avoidance) consultant who's knowledge is probably out of date so I won't go into details but there are two fundamental and conflicting principles so far as Income Tax is concerned …

Profits from betting are outside the tax system, the reason is it would be near impossible to monitor and the corollary would be that losses are tax relievable! Ouch say HMRC.

If you act with the intention of making a profit then the profit becomes taxable. Bookmakers.

A good non-betting everyday comparison would be cars. If you buy a car for the personal use (convenience and enjoyment) then should you sell it and make a profit it is outside the tax system. (HMRC would not want the trouble of giving everyone tax offsets when their car depreciates in value as it nearly always will just to catch the odd guy who makes a profit.) But if you are someone who buys cars and flips them for a profit then it becomes taxable. (And by the way that principal also applies to your family home, there is such a thing as "trading in your principal residence".)

Now, that's the theory and you would of course declare that you bought a car with the intention of making a profit and volunteer to pay tax on the profit, yes! This is why some (and I am one because living on an old farm I have barn storage) will buy a classic car because they love cars and it's a hobby even if they don't drive them … that they should increase in value (tax free) is an accident.

Anyway I agree with Dallas but don't just search here … search the Internet and if you are making enough profit to possibly catch HMRC's eye then go see a competent accountant. Yes they will charge you a fee but it will be peanuts compared to the tax you may be exposed to if HMRC get interested. Trading as we do here is a relatively new activity, while it is below HMRC's horizon all is well but if it becomes a potential good income earner for HMRC they will jump on it. They could easily legislate for it and remember tax is one of the few areas where you have to prove your innocence. If HMRC decide to charge tax the onus is on you to prove they were wrong if you can't then the tax remains due. Fair? Of course not, tax is something the less well off pay and the more well of avoid!

And finally keep stum. HMRC get more 'tip-offs' from friends, neighbours and even family than from any other source!

[Naffman]

You don't need to pay tax, the end

[firlandsfarm]

You don't need to pay tax, the end

Naffman, I assume you have never had dealings with HMRC or studied tax law and it's application … Joe in the street doesn't pay tax … the personal on course bookmaker does pay tax. If there are two opposing positions there has to be a cross over point and knowing what we do if I was an HMRC Inspector I think I could look at our activities closely. By all means make hay while the sun shines but don't be surprised if it turns out cloudy later in the day. Have a look at this HMRC video (https://www.youtube.com/watch?v=MYgCctGY_Ug) and remember the thing you buy and sell does not have to be a physical object … it can be a financial security! The definition of trading relies heavily on the intention or otherwise to make a profit. Also have a look at this website (http://www.hammondaccounting.co.uk/are-you-trading/) which explains it clearly and even cites the principal residence issue I raised. I'm not saying you have to pay tax, as it stands at the moment you don't, but HMRC could challenge that at any time. That betting profits are tax free was established before people could do what we do now, the market has changed. All it needs for HMRC to get interested is for it to be worth their while to do so.

[Naffman]

Yes so not taxable then

[firlandsfarm]

Yes so not taxable then

yes, that's what I have always said … currently not taxable but with a warning that if the potential tax take makes it attractive enough they already have the 'practice' to charge tax on the profits, it just takes a change of desire. What most people don't realise is that HMRC work on a "law and practice" basis and most of what they do is set out in their 'practice'. Practice is not law, it's how they are (currently) applying the law. So HMRC can act quickly to change how they see what is taxable and what is not. They don't have to wait for the Muppets of Westminster to change the law. It is intentionally designed that way to give them the ability to act independent of Parliament. So a few senior Civil Servants with the Chancellor's permission (which can be delegated to others) can decide what and when taxation can change.

In my career I saw many "but that's tax free/offsetable" only for them to cease to be so …

1/2 basic rate tax relief on life insurance premiums
higher rate mortgage interest relief
then basic rate mortgage interest relief
pension funds
pension contributions
RPI relief against CGT
higher rate relief on BTL interest

… for example.

Just don't expect it to stay this way for ever.

[Derek27]

Thanks for sharing your knowledge firlandsfarm. I find it hard to see widespread taxation on gambling for the reasons you mentioned, too difficult to monitor (hard to distinguish between professional and recreational gamblers) and tax rebates (gambling is perceived by people who don't understand it as always highly risky). Let's just hope it stays this way.

[firlandsfarm]

Thanks for sharing your knowledge firlandsfarm. I find it hard to see widespread taxation on gambling for the reasons you mentioned, too difficult to monitor (hard to distinguish between professional and recreational gamblers) and tax rebates (gambling is perceived by people who don't understand it as always highly risky). Let's just hope it stays this way.

I don't think they would do anything widespread because of the difficulties. The way to get around them would be a betting tax and get the bookmakers to be the tax collectors but they tried that and the bookies just said now we have the Internet we will take our business abroad (Malta, Gibraltar etc.), reduce the number of betting shops because if bets at the shop are taxable but bets over the Internet are not …! Job losses

I'm only talking of the traders/professionals … the you and me's. They have the ability now. When does an eBay trader stop being a guy who sells off stuff from the attic and become a guy who regularly does it … they could easily make it a volume thing (did you look at the video link I posted earlier … https://www.youtube.com/watch?v=MYgCctGY_Ug … it explains how they look at trading). Volume is the key flag and they could easily get the volume … Mr Hill you have to send me a list of all customers placing more than 1000 bets in a year, and the same for Mr Ladbrokes, Mr 365 etc. If they chose to just target trading that would be even easier … Mr Betfair, I need you to give me details of all accounts with more than 5,000 bets a year with at least 2,000 back bets and 2,000 lay bets and to make it worth their while they could add … and who made at least £10,000 profit in the year. Now if HMRC then approached you with that saying … clearly you are a professional trader how would you defend that you are not, you are just an ordinary Joe.

Think of this Derek … if you are an on-course bookmaker you pay tax on your profits so why should the Betfair based bookmaker not pay tax? They are the same businesses just different locations. I'm just flagging it because the subject was raised and some may wish to look for ways to defend against such a development … it can be done and at not too much expense.

[Derek27]

Volume is the key flag and they could easily get the volume … Mr Hill you have to send me a list of all customers placing more than 1000 bets in a year, and the same for Mr Ladbrokes, Mr 365 etc. If they chose to just target trading that would be even easier … Mr Betfair, I need you to give me details of all accounts with more than 5,000 bets a year with at least 2,000 back bets and 2,000 lay bets and to make it worth their while they could add … and who made at least £10,000 profit in the year. Now if HMRC then approached you with that saying … clearly you are a professional trader how would you defend that you are not, you are just an ordinary Joe.

That would be quite complexed and they'd need a clear definition of professional gambling/trading. People who won more than £10K with Betfair could claim that they lost more in cash bets with bookies. It could result in a lot of court cases to defend big tax bills.

[foxwood]

Legal precedent that gambling profits are not taxable as income goes back to the 1920's and has been re-affirmed multiple times - see https://www.taxationweb.co.uk/tax-artic ... nings.html for a recent case that puts a bit more spin on the "organized" aspect for professionals.

Backing / laying are gambles. What is called "trading" with sports betting is not actually a trade in any goods or chattels but rather two bets that comprise (as per precedent) "an irrational agreement that one person should pay another person on the happening of an event" - bets.

It would probably need primary legislation in terms of the Budget rather than actually being open to HMRC - they have tried before and lost.

It'll probably come in some form of taxation before too long - probably with a lower band entry point eg more than £1k nett profit in a year - same practical threshold they tend to apply for ebay sellers etc. Probably come under unearned income (since is not earnings ).

That should let all the mugs bet and the pros get taxed - higher rate commissions would probably have to go down then to compensate the taxes and keep pros trading otherwise the whole system would implode as smaller pros left the game since any level of tax may leave them with insufficient profit !

And you won't be able to hide since the bookies /exchanges will have to tell HMRC - just like dividends / interest details etc which is provided to them now.

[firlandsfarm]

foxwood we are just about in agreement, are you in the tax world?

Legal precedent that gambling profits are not taxable as income goes back to the 1920's and has been re-affirmed multiple times - see https://www.taxationweb.co.uk/tax-artic ... nings.html for a recent case that puts a bit more spin on the "organized" aspect for professionals.
now.

Yes the precedent is true but all precedents are based on the law of the land as it stood at the time, if the law changes the precedent is challengable.

Backing / laying are gambles. What is called "trading" with sports betting is not actually a trade in any goods or chattels but rather two bets that comprise (as per precedent) "an irrational agreement that one person should pay another person on the happening of an event" - bets.

Yes they are so why is a bookmaker liable to tax on the profit he makes from the bets he lays? And trading does not have to be goods or chattels … city traders?

It would probably need primary legislation in terms of the Budget rather than actually being open to HMRC - they have tried before and lost..

Only if they were finding difficulty going the 'definition of trading' route the way we bet today is so different to when the precedent was set … I would like to know more about the more recent challenges. But I can't see an MP turning down the chance to knock us "despicable professionals" who make a profit from the little man in the street.

It'll probably come in some form of taxation before too long - probably with a lower band entry point eg more than £1k nett profit in a year - same practical threshold they tend to apply for ebay sellers etc. Probably come under unearned income (since is not earnings ).

Totally agree … when it's big enough they will go for it.

That should let all the mugs bet and the pros get taxed - higher rate commissions would probably have to go down then to compensate the taxes and keep pros trading otherwise the whole system would implode as smaller pros left the game since any level of tax may leave them with insufficient profit !

And you won't be able to hide since the bookies /exchanges will have to tell HMRC - just like dividends / interest details etc which is provided to them now.

Yep in fact the bookies would not be too unhappy because any threshold will encourage backers to leave the exchanges and spread their bets around multiple bookmakers but those who trade would have no choice … all on one exchange means easy to monitor.

[wearthefoxhat]

Interesting read.

I think one issue is if HMRC look at this area and make a minimum profit allowance applicable to a self employed sports trader, the element of paying national insurance as well, rears it's ugly head and the extra costs of setting up an online tax portal. (new requirements).

I hope they swerve poker players though...

[PDC]

Think of this Derek … if you are an on-course bookmaker you pay tax on your profits so why should the Betfair based bookmaker not pay tax? They are the same businesses just different locations.

They are not both the same, I am pretty sure there was a case where this was established. One of the points I remember reading was that 'bookmakers' on exchanges were not actually bookmakers as they don't hold the funds, the funds are held by Betfair which was a significant distinction between an on-course/shop/internet bookmaker and someone on Betfair. So although similar they were deemed not to be the same and therefore were not treated the same.

Your ebay trader holds the goods e.g. the TV they are selling much like the oncourse bookmaker who holds the notes and coins and the ebay trader is responsible for distributing the goods (posting the TV) like the oncourse bookmaker is responsible for giving out winnings. The Betfair based bookmaker never holds the goods (money) and has no responsibility for distributing the goods or collecting any commissions, charges or taxes.

Although similar they are fundamentally different. Have a search of the internet I am sure you will find the rulings about it all.

[Derek27]

Think of this Derek … if you are an on-course bookmaker you pay tax on your profits so why should the Betfair based bookmaker not pay tax? They are the same businesses just different locations.

They are not both the same, I am pretty sure there was a case where this was established. One of the points I remember reading was that 'bookmakers' on exchanges were not actually bookmakers as they don't hold the funds, the funds are held by Betfair which was a significant distinction between an on-course/shop/internet bookmaker and someone on Betfair. So although similar they were deemed not to be the same and therefore were not treated the same.

Your ebay trader holds the goods e.g. the TV they are selling much like the oncourse bookmaker who holds the notes and coins and the ebay trader is responsible for distributing the goods (posting the TV) like the oncourse bookmaker is responsible for giving out winnings. The Betfair based bookmaker never holds the goods (money) and has no responsibility for distributing the goods or collecting any commissions, charges or taxes.

Although similar they are fundamentally different. Have a search of the internet I am sure you will find the rulings about it all.

By 'Betfair based bookmaker' I think he's referring to Betfair customersfrom HMRC's viewpoint.