The United Kingdom is known for its relaxed attitude towards betting, especially in terms of betting and gambling. Though tax is paid, it is done so by the companies that provide betting platforms as opposed to the people winning money through their wagers. This results in some people in the UK treating gambling more like a profession than a pastime, including in areas of the industry such as spread betting.
Some people that get involved in spread betting do so as their sole source of income, meaning that it is no longer classed as gambling by the government and is instead seen as trading. If you’re a trader then you need to pay tax on things that other people don’t, resulting in a loss of earnings. If, however, you have a subsistence that is enough to live off from a different trade then you won’t pay tax on spread betting.
A Brief Explanation Of Spread Betting
Spread betting is a somewhat complicated process, with countless sites online going into a lot of detail explaining what it’s all about. We’re not going to do that on this page for the simple reason that it’s a topic in and of itself, so instead we’ll offer a brief and relatively simplistic explanation of what spread betting actually is. For those that know about it in-depth, the key words there are ‘brief’ and ‘simplistic’.
Spread betting is thought of as being a derivative strategy, in which spread bettors are essentially speculating on the future price of an asset like a the number of goals in a game. Much as with the world of stock markets, there is a price that you can buy at and the price that you can sell at, with the difference between the two being what is known as the spread. The invention of spread betting is widely credited to Charles K. McNeil.
He was a teacher of mathematics who went on to become a securities analyst and eventually a bookmaker, so it’s fair to say that it has always had ties to the world of sports. Spread betting isn’t just on sports, of course, but it can be. As mentioned, it’s a complex world and one that you really shouldn’t look to enter into unless you have some idea what you’re doing, given that there are risks involved.
In spread betting you take a ‘position’ on a market and the more accurate your position is the more you can win, the less accurate it is the more you can lose. Unlike fixed odds betting you can end up in a position with spread betting where you lose more money than you have in your account, meaning you can end up owing the company money beyond what you initially deposited.
How Tax On Spread Betting Works
If spread betting is something that you get involved in on the side of your main job then you will not have to pay any tax on the profit that you make. That’s because it is considered to be a form of gambling and is therefore not liable for tax in the same way that other profits are. Instead, it fits into the tax laws around betting and gambling, which state that it is a tax free activity regardless of how much money you make from it.
The key point there, though, is that the spread betting is not your main job or source of income. If you don’t earn money on anything except for spread betting then things change and you’ll become liable to pay money on your earnings. If you pay tax on an income that is enough to live on then you won’t pay tax on your spread betting earnings, but if you don’t then you will. It pretty much is that simple.
Her Majesty’s Revenue and Customs are extremely reluctant to see anyone classed as a professional gambler for the main reason that if they do so then that person could claim relief against their losses. In other words, it’s unlikely that HMRC will work hard to prove that you’re earning your sole living from being a spread bet trader, but it can happen if you don’t do things correctly when it comes to your tax returns and so on.
Do HMRC Earn Any Tax From Spread Betting?
As with other forms of gambling, the fact that most spread bettors don’t pay tax on their winnings doesn’t mean that Her Majesty’s Revenue and Customs department doesn’t earn any from it as an activity. Companies that provide others with the ability to engage in spread betting pay a betting duty directly to HMRC, which is reflected in the bid-offer usually being slightly higher in order to cover that amount.
There’s also a reality to acknowledge when it comes to spread betting, which is that the number of people who make a loss far outweigh those that make a profit from it. That means that there is only a marginal gain to be had, if any gain at all, from a decision to more actively tax those that get involved in spread betting. Money is currently made from it, with the amount unlikely to change significantly if how it’s taxed was altered.
As things currently stand, spread betting is free from Capital Gains Tax and Stamp Duty in the United Kingdom for the vast majority of people who engage in it as an activity. The key thing to keep coming back to, though, is that the majority of people will have another source of income other than their spread betting profits. If you don’t then it’s entirely possible that your situation will change and you’ll be taxed on your earnings.
Here’s what is said on the HMRC website about the matter:
“To be taxable, the spread betting wins must come not merely from an opportunity presented by a trade, they must arise from the carrying on of that trade. Whether or not a particular spread bet is taxable will depend on the terms of the contract and the economic substance of what is done.”
If you’re at all concerned then you can contact the revenue service and ask them for a ruling, which they would then be bound by. In essence, though, you have no need to mention spread betting on your tax return on the proviso that it is not your sole form of income. It’s also key to remember that tax evasion is illegal, unlike tax avoidance, which is not and in some cases (ISAs, for example) is state sponsored.