UK Bookies Welcome Review of Betting Exchange Tax Treatment

by Robert Lee
Tax-News.com

UK bookmakers have welcomed the decision by Chancellor Gordon Brown to review the way online betting exchanges are treated by the tax system.

Although a relatively new addition to Britain’s gambling industry, the popularity of internet betting exchanges has increased dramatically, with more than 250,000 people using them, according to some estimates. The exchanges work by allowing punters to place bets with each other, rather than with a bookmaker, with the exchange firm effectively acting as a broker.

However, unlike bets placed with conventional bookmakers, users of exchanges pay tax on commissions, rather than on winnings, allowing them for the most part to pay less tax. Conventional bookmakers have complained that this gives the exchanges an unfair competitive advantage.

"All that we are asking for is that anyone who lays bets on an exchange should be subjected to the same regulation and taxation issue as any other licensed bookmaker,” David Hood, a spokesman for William Hill, was quoted by BBC Online as announcing.

However, Paul Cooper of betting exchange Sportingoptions.co.uk told the BBC that the sector was already fairly taxed.

"Professional gamblers have not been taxed in the past and there's no way they should be taxed now because they're taking the position of saying something will or won't happen,” he observed.

Do we agree or disagree that both sides should be taxed equally?

The betting exchanges should be taxed on their profits (like the books) IMO.

The people betting on the exchanges should be left alone as they pay commission to the exchange. The punters are allowed to bet tax free at the books so the same should apply on the exchanges IMO.

To make them pay a further tax at the exchanges would be giving the books an unfair advantage.

The UK books are agressivley attacking their opposition (the exchangs) because for the first time they have genuine competition which operates on a different (and in many ways superior) business model IMO.

The UK tax authorities have up to now steered clear of taxing betting profits. The reason is that a well established tax principle going back over 200 years here is that loss relief is given for those who are losing out in a situation where others are having profits taxed.

Since 90% of punters lose money, the Revenue have always taken the view that its not worth the risk of having to give masses of loss relief to chase the 10% who make profits.

I'll be interested to see the details of this since I can't see how they will administer it. I often scalp using exchanges to lay off the bets, these lays usually lose since the soft price is the other side.

So I will certainly have a go at claiming my loss relief and I would encourage others to do so too. Otherwise this might turn out to be the thin end of the wedge, and lead to ALL our profits being taxed.

(London, 15/03/2004) There follows explanatory text relating to events which have generated a great deal of anti-betting exchange press in recent days. It sets straight a great deal of misinformation that has been circulated relating to Betfair’s customers; the purpose of licensing; the strengths of its audit trail; and the fallacy (apparently accepted this week by some mainstream media) that recent events are new to racing.

The arguments put forward by Betfair’s opponents are commercial in background and hypocritical in nature. They are designed to put restrictions on betting exchanges, yet offer no compensatory safeguards to the public (such as improving their own transparency), or positives for the sports or racing industries.

The claims of the traditional bookmakers to uphold the integrity of sport are contradicted by their unwillingness over a 40 year period to offer information to the Jockey Club to assist the investigation of countless betting scandals. It was not until Betfair publicised its Memorandum of Understanding with the Jockey Club in June 2003 that the traditional bookies were embarrassed into accepting the principle of information sharing.

Betfair champions the cause of the consumer. Its low-margin betting platform redresses the longstanding financial and knowledge imbalance between punter and bookmaker. Recent concerted efforts to tar Betfair with the brush of suspicious practices which concern the racing industry as a whole form part of a strategy aimed at reducing consumer choice and value in what has now become a genuinely competitive industry.

The text below forms part of a letter sent by Betfair to the Chairman of the Joint Scrutiny Committee, John Greenway, on these issues.

The key points are:

•Racing scandals are not new, and are not created by exchanges. The recent controversies are important issues for racing, but are being deflected onto betting exchanges because it suits the commercially-motivated agenda of some to do so. These events have received increased media attention directly because exchanges such as Betfair can and do identify and report suspicious activity.

•Licensing and taxing exchange users who bet that outcomes will not happen would achieve nothing. On this basis anyone who took Kieran Fallon’s alleged tip that Rye would beat Ballinger Ridge would not require a licence, while those who bet that Fallon’s mount Ballinger Ridge would lose to Rye would have to have a licence and pay tax.

•Bookmakers are licensed for reasons of financial probity, because they deal with the public’s money, and not for any other reason.

•Bookmakers provide punters with the opportunity to bet. Licensing or taxing punters on exchanges who bet that outcomes do not happen is as absurd as taxing those who bet that outcomes do happen. Both are punters, neither is a bookmaker.

•Recent claims regarding Betfair’s audit trail demonstrate a complete lack of understanding of its comprehensive nature.