Do You Pay Tax on Winning Bets?

hmrc websiteIt would be common for anyone new to sports betting to ask if any tax is payable on their winning bets. After all, this is how some countries operate when it comes to gambling. In the United States of America, for example, any income that residents earn, be that through work, gambling, or any other activity, is taxable. Yet that’s not how it works in the United Kingdom.

To provide a simple answer to the question asked, no, there is no tax payable by bettors on their winnings in the UK. That may seem like quite a strange setup, considering that most of us realise that the UK Government always wants to take a slice of something for itself. You needn’t worry, though. A tax still occurs that means money heads the government’s way – it’s just not payable by punters. It comes from the bookmakers instead, in the form of a Point of Consumption Tax (POCT).

Tax laws in the United Kingdom changed in 2001, again in 2014, and then once again in 2018 to accommodate then changing gambling world. In all instances, the need for bettors to pay any kind of levy on their winnings altered. As a way of increasing the tax revenue from online operators of betting who base themselves offshore, lawmakers came up with a new plan – to tax all operators that hold an official UK licence.

A Look Back in History

betfred shop in shopping centre lucky 15 31 63 ads in the windowBefore the 1960 Betting and Gaming Act came into action, placing cash bets was an illegal activity outside of racecourses. Even so, many bookmakers operated illegally during these times. The burgeoning black market for gambling forced the government to act, especially when they realised a tax could be imposed on it. The 1960 Act introduced that tax, while licensing high street betting shops to operate in a legal way.

Betting shops began to open in 1961, and a new levy was also charged to bookmakers of 6.75%. The bookies then passed this tax on to bettors in the form of a betting tax, which stood at 9%. The tax was payable either at the time of placing a wager or on any payout received. Most elected to pay the tax on the stake placed, as 9% on a return can be a lot of money – especially true in those days.

The betting landscape had changed by the turn of the new millennium, though. More and more gambling was moving towards telephone betting and online wagering. Because of this, companies had the ability to move offshore, where tax havens existed in locations like Malta and Gibraltar. Punters could thus bet tax free at their online sites. The Victor Chandler brand (now known as BetVictor) was one of the earliest big-name brands to do this.

Then-Chancellor Gordon Brown saw this as having a big impact on the UK economy and so he enacted a change to the gambling tax law. In 2001, the betting levy was abolished altogether. Instead, it was replaced by a tax rate of 15%, to be paid by the bookmakers on their gross profits at the point of supply.

Naturally, that was a fantastic day for bettors, but bookmakers weren’t so happy with the change. Yet it didn’t solve the overall problem because more and more bookies opted to host their operations offshore. The tax in place at the time was ‘Point of Supply’. Those companies based offshore were charged a tax based on where they were located. Thus, they would pay their local tax rates on profits, rather than the full UK tax. In Gibraltar, that was capped at 1% or a maximum of $400,000 – significantly less than the 15% in the UK.

Such good rates forced more companies abroad, including big high street names like Coral. This allowed them to keep their high street businesses operational in the UK, with profits liable to the 15% tax, but online profits being taxed abroad. The online industry grew in a huge way over the proceeding years, thanks to improvements in internet capabilities and the Point of Supply tax was quickly becoming insignificant.

The 2014 Amendment Takes Hold

gambling taxThe Gambling Act 2005 had an amendment introduced to it in 2014. This surrounded the tax legislation, featuring the new 15% ‘Point of Consumption’ levy. Through this, offshore companies became obliged to pay tax on the profits they earned from UK-based customers into the UK Treasury. It is a requirement for any operator providing gambling services in the UK to hold a UK licence. One of the conditions of such a licence dictates that all operators pay the POCT, too.

Then, in 2018, the then-Chancellor Philip Hammond announced his budget. This spoke of a higher POCT rate being introduced, increasing from 15% to 21%. That would be imposed on bookmakers for online gambling operations. The change in the tax percentage came into effect in October of 2019. It was also at that time that a £2 betting limit on Fixed Odds Betting Terminals (FOBTs) became law.

With the POCT at 21% still being the law, only bookmakers are required to pay tax on their gross profits. You don’t need to declare anything that you acquire through sports betting to the government, as you don’t pay tax on such.

If you secure a return in another country, then you will need to check into the tax laws on gambling. You don’t need to declare this when you return to the UK, as you will pay the tax at the Point of Supply, most likely.