http://www.hmrc.gov.uk/manuals/bimmanual/BIM22017.htm -
BIM22015 - Trade: exceptions & alternatives: betting and gambling: introduction
The basic position is that betting and gambling, as such, do not constitute trading. Rowlatt J said in Graham v Green [1925] 9TC309:
“A bet is merely an irrational agreement that one person should pay another person on the happening of an event.”
This decision has stood the test of time. In an Australian case, Evans v FCT [1989] 20ATR922, 89ATC4540 Hill J said:
“There has been no decision of a court in Australia nor, so far as I am aware, in the United Kingdom where it has been held that a mere punter was carrying on a business.”
However, an organised activity to make profits out of the gambling public will normally amount to trading.
Although over time new forms of games of chance have evolved, these principles remain the same. The taxpayer placing a spread bet is not normally carrying on a trade (see BIM22020 for exceptions). They are not taxable on the profits, nor do they receive relief for their losses. The bookmaker organising the spread bet is taxable on their profits.
The section on betting and gambling contains the following further guidance:
· what is a bet - BIM22016,
· the professional gambler - BIM22017,
· organised activity - BIM22018,
· element of existing trade - BIM22019,
· spread betting - BIM22020.
BIM22016 - Trade: exceptions & alternatives: betting and gambling: what is a bet?
The first, and obvious, question is simply what is a bet? A definition of a bet or ‘wager’ was given by Hawkins J in Carlill v Carbolic Smoke Ball Company [1892] 2QB484 and has been followed in later cases:
“It is not easy to define with precision what amounts to a wagering contract, nor the narrow line of demarcation which separates a wagering from an ordinary contract; but, according to my view, a wagering contract is one by which two persons, professing to hold opposite views touching the issue of a future uncertain event, mutually agree that, dependent on the determination of that event, one shall win from the other, and that other shall pay or hand over to him, a sum of money or other stake; neither of the contracting parties having any other interest in that contract than the sum or stake he will so win or lose, there being no other real consideration for the making of such contract by either of the parties. It is essential to a wagering contract that each party may under it either win or lose, whether he will win or lose being dependent on the issue of the event, and, therefore, remaining uncertain until that issue is known.”
BIM22017 - Trade: exceptions & alternatives: betting and gambling: the professional gambler
The fact that a taxpayer has 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.
The case of Graham v Green [1925] 9TC309 concerned a man whose sole means of livelihood came from betting on horses at starting prices. Rowlatt J says at pages 313 and 314:
“Now we come to betting, pure and simple… the man who bets with the bookmaker, and that is this case. These are mere bets. Each time he puts on his money, at whatever may be the starting price. I do not think he could be said to organise his effort in the same way as a bookmaker organises his. I do not think the subject matter from his point of view is susceptible of it. In effect all he is doing is just what a man does who is a skilful player at cards, who plays every day. He plays to- day and he plays to-morrow and he plays the next day and he is skilful on each of the three days, more skilful on the whole than the people with whom he plays, and he wins. But I do not think that you can find, in his case, any conception arising in which his individual operations can be said to be merged in the way that particular operations are merged in the conception of a trade. I think all you can say of that man ... is that he is addicted to betting. It is extremely difficult to express, but it seems to me that people would say he is addicted to betting, and could not say that his vocation is betting. The subject is involved in great difficulty of language, which I think represents great difficulty of thought. There is no tax on a habit. I do not think "habitual'' or even "systematic'' fully describes what is essential in the phrase "`trade, adventure, profession or vocation''.’
This shows that having expertise or being systematic (‘studying form’) is not enough to create a trade of being a ‘professional gambler’.
Some ‘professional gamblers’ do carry on a trade, for example, where they receive appearance money for appearing on television programmes. They are providing a service to a customer (the television production company) for reward. Whether their gambling winnings are proceeds of that trade would depend upon the facts.
BIM22018 - Trade: exceptions & alternatives: betting and gambling: organised activity
An organised activity to make profits out of the gambling public will normally amount to trading. An example of this is the bookmaker.
In Partridge v Mallandaine [1886] 2TC179 a professional bookmaker systematically attended racecourses for the purpose of carrying on that activity; he could not legally recover amounts due to him. He was held to be carrying on a vocation and hence assessable Case II.
Rowlatt J explained the position in Graham v Green [1925] 9TC309 at page 313:
“It has been settled that a bookmaker carries on a taxable vocation. What is the bookmaker's system? He knows that there are a great many people who are willing to back horses and that they will back horses with anybody who holds himself out to give reasonable odds as a bookmaker. By calculating the odds in the case of various horses over a long period of time and quoting them so that on the whole the aggregate odds… are in his favour, he makes a profit. That seems to me to be organising an effort in the same way that a person organises an effort if he sets out to buy himself things with a view to securing a profit by the difference in what I may call their capital value in individual cases.”
Bookmakers may themselves place bets. Where this is done as part of the trade (‘laying off’), the proceeds or losses have to be taken into account in arriving at their profit.
The key feature is that the taxpayer is likely to be involved in the organisation of the activity. They are not mere punters. They are carrying on an activity where the odds are in their favour.
BIM22019 - Trade: exceptions & alternatives: betting and gambling: element of existing trade
There are exceptional circumstances where a trader may enter into a ‘bet’ in the course of trading activities. An example would be where the ‘bet’ is used to hedge the interest rate on a loan for the business.
The cases of Down v Compston [1937] 21TC60 and Burdge v Pyne [1968] 45TC320 show that to be taxable, betting wins must come from the carrying on of the trade not merely from an opportunity presented by a trade.
In Down v Compston [1937] 21TC60 a professional golfer attached to a golf club habitually engaged in private games of golf for bets of varying amounts and won substantial amounts. He was found not to be liable under Case II on the basis that the bets did not arise from the playing services and that there was no organisation to support the view that he was carrying on the business of betting on the games of golf.
In Burdge v Pyne [1968] 45TC320 the proprietor of a registered club which provided gambling facilities, including a card room, won considerable sums of money from three-card brag which he played regularly with members in the card room. He was taxable on his gambling winnings.
Pennycuick J stated at pages 323 and 324:
“…the Appellant was carrying on the business of a club; upon the club's premises he habitually played the game of three-card brag with other members of the club; and at that game he was invariably successful… Given those facts, it seems to me that the Commissioners came to the right conclusion in finding that the winnings of the Appellant from three-card brag did represent a receipt by him in carrying on the business of the club. He owned the club; he carried on this game upon the club premises as such; and, moreover, it was members of the club in whose company he played the game and from whom, it appears, he invariably won money. I see no reason to think that that particular activity on the part of a club proprietor is not an activity in the course of carrying on the business of the club, and consequently winnings from that activity fall into the receipts of the club for the purpose of ascertaining the profits of its business.
[the Appellant] contended that these winnings should be treated as the fruit of a private activity ... outside the business of the club, and accordingly should not be taken into account in computing the profits of the club.”
He went on to distinguish Graham v Green [1925] 9TC309 (see BIM22016) because:
“here there is a trade whereas there the person charged was not carrying on any trade at all”.
Of Down v Compston [1937] 21TC60 he said:
“In that case the vocation afforded in some sense the opportunity for making the bets, in that Mr. Compston would not have had companions on his rounds against whom to bet if he had not been a professional golfer, but the bets did not arise out of his vocation. Again it seems to me that that case is wholly distinguishable [because] in the present case the club was not merely the occasion that enabled the Appellant to play private games of cards. The playing of cards was part of the activities of the club, and his winnings from those cards, it seems to me, arose in the full sense out of the carrying on of the club”.
It should be noted that the findings of fact show that the taxpayer or one of his family had to be present whenever cards were played and always acted as dealer. The findings also show that the cards were an integral part of the club and the means by which it made a profit.
BIM22020 - Trade: exceptions & alternatives: betting and gambling: spread betting
The principles of Down v Compston [1937] 21TC60 and Burdge v Pyne [1968] 45TC320 (see BIM22019) apply equally here.
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.
For more on this see CFM13214.
maybe I don't need to trade 
