In general, no UK gamblers/traders will pay tax on their winnings. They are Tax Free. The Inland Revenue has now shifted to onus of any tax liable, to be paid by the companies, bookmakers, and trading outlets – such as Betfair, and this takes a whole heap of pressure of the punters/gamblers. HM Revenue & Customs, Department for Digital. Appoint a representative in the UK; Register for gambling tax; File your gambling tax return; Gambling Tax Service: online service guide for. In 2014 an amendment to the 2005 Gambling Act the tax legislation was issues. This contained a new 15% point of consumption tax on all gross profits. This now meant off shore companies were obliged to pay tax on profits earned from UK based customers to the UK treasury. Gambling enterprises are required to pay the UK government a minimum of 15% tax on any amount up to £2,370,500. The tax then increases accordingly to 20%, 30%, 40% and 50%.
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The UK is raising its point-of-consumption (POC) gambling tax from 15 percent to 21 percent. The news came in the form of a recent adjustment to the annual UK Government budget.
Here’s an excerpt from the overview:
“A behavioural adjustment has been made to take into account changes in spending on remote gaming in response to this policy, and to account for changes in operator behaviour.”
The UK expects to generate an extra £1.23 billion ($1.56 billion) from the increase over the next five years.
US states with legalized online gambling — and those looking to regulate the industry — should pay close attention to this change. According to the document, “this measure will impact on individuals or households through a change in odds” if operators pass the tax increase on to players.
UK has the experience to get tax rates right
The last 10 years have seen the proliferation of gambling regulation in EU member states, which has been accompanied by studies that explore the impact of taxes. They show a clear correlation between tax rates and the proportion of players drawn into the regulated market.
After four years of operation under the POC system, the UK Gambling Commission (UKGC) believes that the overwhelming majority of online poker, sports betting and casino traffic flows through regulated sites.
With an established industry, the UK is now confident it can raise taxes without pushing players into the black market. Some continental peers, by comparison, see as much as 40 percent of their players sticking to offshore, unregulated poker rooms.
Studies also link the amount of gambling revenue directly to the rate, showing that taxes over 20 percent don’t generally result in gains.
Gambling Tax Laws
Should US states shoot for similar taxes?
In a presentation to two subcommittees of the Illinois legislature, Rep. Lou Lang tackled the issue head-on. “It’s important to do it right, rather than quick,” he said, speaking about sports betting regulation. Otherwise;
“You make a real mess as Pennsylvania did.”
Lang went on to explain that the 36 percent tax on sports betting was a big mistake in Pennsylvania. “If this industry is taxed too high,” he said, “illegal betting continues.”
New Jersey has a tax rate of 17.5 percent for NJ online poker and casinos, while online sports betting is taxed at a rate of 14.25 percent. Both numbers include mandatory additional taxes for redevelopment and other state industries. Nevada has even lower rates of 6.75 percent for both online poker and sports betting.
If the UK has analyzed the situation correctly, both states should have the freedom to raise taxes to a similar level.
New Jersey and Nevada are distinct markets, of course, and what applies to the UK doesn’t necessarily apply to them. But all three markets have followed a similar path. They began with rates well below 20 percent, a sweet spot that attracts players away from the black market. And they already have high rates of channeling to the regulated market.
It’s entirely possible raising tax rates might not drive players back to the offshore sites in these established markets, either.
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Raising taxes is easier than reducing them
Pennsylvania faces the opposite problem. It is poised to open interactive gaming with tax rates that are already an impediment to converting offshore players.
Italy offers a correlating example there, having launched its regulated online sports betting industry under an untenable tax. The rates were calculated as a percentage of the total amount wagered, rather than on the revenue operators received. In 2015, the system was changed to a flat rate of 22 percent of gross gaming revenue — a rare example of tax rates being reduced.
The online gaming industry in France has failed to gain support for a similar change, though.
French regulators calculate taxes for poker games as a percentage of each pot — whether or not there’s a flop. This has resulted in online poker operators paying the equivalent of 37 percent of their gross gaming revenue.
Sure enough, online poker began to decline soon after it was first regulated in France. Revenues have increased only in the period since shared liquidity linked France and Spain.
What’s the bottom line?
In short, there are three European lessons to follow for Pennsylvania and other states that want to get gambling tax and regulation right:
- Start with tax rates that will channel the highest percentage of the market to regulated sites.
- Don’t increase taxes until the market is stable.
- Don’t increase taxes much above 20 percent.
Joss Wood - A former editor of Poker Industry Pro, Joss Wood is a graduate in English from the University of Birmingham. Joss also holds a master’s degree in Organisational Development from the University of Manchester. His career path has taken him from the British Army, through business and finance to seven years as a successful professional poker player.
A question I get asked a lot, is whether Betfair trading profits, or gambling winnings are really tax free in the UK; and it is a very good question, because we are all usually aware of what needs to be declared to the Inland Revenue, but is gambling really tax free?
There has been quite a few shifts in law from the UK Inland Revenue over recent years on whether punters actually pay tax from any winnings from bookmakers, trading activities, (Forex) or from Betfair.
I suspect that due to the fact many people don’t really wish to report any additional earnings that may complicate their tax affairs, that this could potentially be losing you an easy, tax free income (matched betting being the activity where I receive the most questions, and which is easy).
Is Matched Betting Tax Free?
If you didn’t already know, matched betting is becoming increasingly popular as a way to make some extra money. In fact, it is probably the largest single activity of all the gambling, and bookmaker websites at the moment – because it simply works.
If you are interested in this as a possible source of income, then we have reviewed such options on this very website, and you can click the following fo full details:
Just to quickly explain, when Betfair started up as a rival to UK bookmakers, this created an ideal opportunity to make ‘reverse bets’. IE: With Betfair you can actually bet on something to lose (this is called lay betting), and this means that as well as betting for something to win via conventional bookmakers, you can make an identical, but with a reverse scoreline/outcome with Betfair, which will cancel both bets to an almost break even situation, and then just take all the enticements from bookmakers, and these enticements come in cash.
This is essentially what matched betting is, but is it tax free? I’ll get onto this at the end of the review.
Are Betfair winnings Tax Free?
Uk Gambling Tax Revenue Calculator
Again, this is very similar to general bookmakers, as the Inland Revenue are at present declaring Betfair revenues as gambling, so the same rule applies.
Now that Betfair has grown in popularity, more and more people are trying to find out if they too can make a regular income using their website – and why not. That is what gambling is – trying to make an extra few quid without too much effort.
Betfair do charge their customers a commission charge on their winnings, and this actually starts at around 5%, so you need to be aware of this commission when doing any calculations for matched betting, or any other activities you may have when using their trading platform, as although it is a small amount, it can soon add up if you don’t take it into account.
Betfair’s 60% Premium Charges
There are reports of some Betfair users claiming that once you reach £250,000 in ‘winnings’ from Betfair, that they (Betfair) will place their own 60% tax on the winnings before they are paid out to you.
Now, this Betfair tax is NOT an Inland Revenue tax, it is just a (some would say crazy) little in-house ‘commission’ that Betfair has, in their wisdom, decided to place on their users – the people who actually make them a profit.
Remember though, that this is only after you have made £250,000 in winnings – a cool quarter of a million spondoolies, so I wouldn’t worry too much about their commission, because if you ever get to that stage, you will already be in a very good place 🙂
Do I Have To Declare All My Gambling Winnings?
OK, let’s get to the crux of this, because as I already mentioned, it is actually a very, very good question, and one that more, and more people are asking themselves (and me!).
In general, no UK gamblers/traders will pay tax on their winnings. They are Tax Free.
The Inland Revenue has now shifted to onus of any tax liable, to be paid by the companies, bookmakers, and trading outlets – such as Betfair, and this takes a whole heap of pressure of the punters/gamblers.
The main reason the UK government did this, was because a lot of revenue was being lost to offshore companies, and bookmakers using tax haven locations to avoid paying their taxes. So, they law was changed, and now UK gamblers no longer have to pay any tax on their winnings – becoming tax free – but the businesses (the bookmakers) do pay the tax on their overall business profits!
The official Inland Revenue Website page on the business side of the matter can be found here (The tax the businesses will pay):
And an extract from WikipediA:
Gambling in the United Kingdom is regulated by the Gambling Commission on behalf of the government’s Department for Culture, Media and Sport (DCMS) under the Gambling Act 2005. This Act of Parliament significantly updated the UK’s gambling laws, including the introduction of a new structure of protections for children and vulnerable adults, as well as bringing the burgeoning Internet gaming sector within British regulation for the first time.
And and extract from The Mail Online when the UK Tax laws on gambling changed:
(The above image is Copyright The Mail Online)
Although, to place a layman’s term on this, the following are details I researched on this subject:
You Do Not Pay Tax on Gambling in The UK
You do not pay tax on any winnings on any gambling, including the following:
- Betfair profits (backing or laying).
- Arbing (bookmakers may not like arbing, but it is still tax free).
- Bookmaker profits – Your winnings.
Is has been said that one of the main reasons why the UK Inland Revenue decided not to tax the ‘punters’ was because it was becoming a logistical nightmare, and if tax was to be claimed on winnings, then they, the Inland Revenue, could potentially open themselves wide open to the possibility of any losses being claim back in the same way – and most gamblers lose their money!
If tax was being paid in the same way a business would pay tax, then the same businesses could potentially claim back losses up on their tax returns – and as we all know, more people lose when gambling than win, so government closed that possibility very quickly.
So now, the bookmakers pay the tax on their yearly profits.
Gambling Profits as a Sole Source of Income?
There have been rumours that if gambling is your 100% sole source of income, then the Inland Revenue could possibly look at that as a tax benefit, but to date I have not read of a single case where this was actually followed through by the Inland Revenue, and even if they did, there are potential ways around that.
A small eBay business as a tiny sideline would put paid to gambling being your sole source of income. I am not condoning such an action, of course as we all need to pay our taxes by law, where applicable, but should somebody be in that position, then they may want to diversify slightly so that gambling was then not their only source of income.
But as mentioned, at the time of writing I have not read a single entry online of anybody being in that position.
Conclusion on Tax Free Gambling Profits.
The tax laws in the UK mean you can gamble tax free, and you should have no concerns unless there is another change in the law, which is unlikely.
Enjoy your tax free winnings 🙂