Trading or Spread Betting?

One of the questions that we get asked about most is whether activities would be classed as trading or spread betting by HM Revenue and Customs.

Whilst the definitive answer to this question cannot be given without a full understanding of the facts involved in each case, HM Revenue & Customs are very clear in their guidance manuals that ‘The fact that a taxpayer had a system by which they place their bets or that they are sufficiently successful to earn a living by gambling does not make their activities a trade’ (BIM22017).

It is also stated in HMRC guidance that the basic position is that betting and gambling (including spread betting) do not constitute trading and that in the 1925 case of Graham-v-Green ‘A bet is merely an irrational agreement that one person should pay another person on the happening of an event’ (BIM22015).

However, the HMRC guidance also states that ‘An organised activity to make profits out of the gambling public will normally amount to trading and for this they used an example of a bookmaker’ (BIM22018).

Therefore, there is not a definitive argument between the two treatments and whilst true spread betting is outside the scope of tax, if you are a market maker or have your trades organised in such a way as to not be a mere ‘punter’, it is likely that your trading activities will be seen as taxable.

Is spread betting ever likely to be taxable?

As the law stands, it does appear unlikely that gambling (in all its forms) will ever be made taxable, as if HM Revenue and Customs seek to tax gambling profits it would be reasonable to presume tax relief for any losses made would also be available. It is easy to see why this is unlikely given this argument.

If spread betting is never likely to be taxable, should I start using a spread betting platform?

If you are currently already trading on the financial markets, your decision should not be based just purely upon tax.

Using a spread betting platform, you may find that the speed of placing and exiting trades is slower, the spreads available are much wider and the costs of placing the trades could be higher.

In addition, obtaining mortgages or other loans in the future could be more difficult as you would not be able to show your spread betting profits as income for the purposes of these applications.

Obviously tax is still a major consideration, although if you have your activities structured and organised into such a way as to minimise the likelihood of losses being made, or you are a market maker then it is still likely that you may well be seen as a taxable trader regardless of the platform used.

However, if you trade part time then it could be possible for you to structure your trade in such a way for a spread betting platform and remove these profits from your taxable income. However, remember that if you make a loss whilst spread betting you would not get tax relief for this loss. 

If you would like to discuss your specific affairs with one of our team, please contact a member of our team on 01474 853856. Please note that the only way to get a full and final answer to your query would be to request a written ruling from HM Revenue and Customs having presented the full facts of your particular case to them.

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