Trading or Spread Betting?
Article updated August 2020
One of the questions we get asked the most at Accountants for Traders is whether activities would be classed as trading or spreadbetting by HMRC.
In order to answer this, we need to understand the full facts of your individual case and how you are approaching the spread betting activity.
The HMRC Guidance is quite clear, stating 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) And there is various case law that supports this approach.
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 clear distinction 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 HMRC start to tax gambling profits, they would have to give tax relief for gambling losses too, and given the fact that most people make losses on gambling, it’s safe to assume that this isn’t going to happen.
If spread betting is never likely to be taxable, should I start using a spread betting platform?
The decision about which platform to use should never be based just on the tax treatment.
When 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 are often significantly higher.
In addition, obtaining mortgages or other loans in the future could be more difficult as the income from the spread betting won’t be able to be used in support of these applications.
When could my spread betting activities be taxable?
If you approach your spread betting in a professional manner, it’s your only source of income and you structure your activities in a way that minimises the likelihood of losses being made or you are a market maker, then there is a possibility that HMRC could consider you as a taxable trader regardless of the platform used.
However, if you are only trading part time and are not looking to rely on the profits that you are generating from this, then it could be possible for you to use a spread betting platform and not pay any tax on the profits made, but remember that you won’t get any tax relief for the losses made either.
It is possible to request a written ruling from HMRC as to how the activity should be taxed and to get this you’d need to present the full facts of your case to them, but we’d always suggest discussing this with one of our team first as we’ve got vast experience in dealing with this issue.
If you’d like to do this, please contact a member of our team on 01474 853 856 or email firstname.lastname@example.org.
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