8 Tax Tips: Management of Gambling Sites & Player Gains

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Many players and operators alike see taxation in the gambling industry as a highly complex matter:

  • How many forms should they fill-in?
  • What must necessarily be reported?
  • Are winnings and losses taxed differently?
  • What categories do they belong to, etc.?
This article aims to clarify tax regulations in the UK and provide helpful tips to navigate payments where necessary.

Player taxation​

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Thanks to the abolishment of gambling taxes of 2001 and the Gambling Act of 2005, UK taxpayers are no longer charged for their gambling winning or loss.

This is supported by the fact that both the government and the UK Gambling Commission have established gambling as a leisure activity. So, it would be illegal to consider that a player placing a bet is involved in trading activity.

However, according to other tax legislation, UK gamblers may be taxed on the actions they take following a win.

Income tax

This is perhaps most common with large winnings, like in lottery draws or jackpot games. Such a payment is only due if the winners invest what they have won.

In short, using your results to generate income can cost you up to 18% in tax.

Inheritance tax​

If your winnings are transferred to anybody as inheritance, you may be liable to pay a 40% tax. The inheritance tax is only applicable if the inherited amount exceeds a specific amount subject to change.

This payment is also required for gifts purchased with winnings exceeding the previously mentioned threshold.

Whether the gift is officially transferred or donated, the tax will apply should you die within seven years of the donation. Gifts include anything, from houses and cars to just cash.

Taxes and professional gambling​

According to Her Majesty’s Revenue and Customs’ Business Income Manual (HMRC - BIM22015), gambling cannot be considered a trade.

Therefore, gambling income cannot be taxable.

But what of professional gamblers?​

In theory, your primary source of income should be subject to tax.

Any gambling activity can turn someone into a professional player if one develops the necessary resources and strategies to transform it into the primary source of income.

Still, because the activity performed is gambling, the winnings you would make cannot be taxed.

Professional gamblers can yet be taxed​

You may be considered a professional gambler if you earn your livelihood primarily through gambling activities such as:

  • Participating in poker tournaments
  • Betting on sports competitions
  • Taking part in significant casino contests, etc.
While your winnings cannot be taxed, you may become so famous that you are paid to take part in gambling competitions. That specific pay, separate from winnings, is liable for income tax.

Gambling operators​

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Suppose your primary activity is to provide gambling services to the UK population. In that case, you effectively earn your livelihood by providing a service. This makes you liable to tax.

These are eight tips to make sure you approach taxes appropriately and are covered on all bases:

Check your gambling duties​

All British gambling operators must register with HMRC (Her Majesty's Revenue and Customs) before paying their dues.

When you do this, you must specifically register to pay one or more of the following:

  • General Betting Duty
  • Pool Betting Duty
  • Remote Gaming Duty
These duties apply to all UK gambling except offering spread betting or online gambling services to non-UK residents.

You must pick the ones that apply to the service category you offer. Omitting one or more duties can cause tax avoidance or evasion charges.

Register with HMRC​

Registering with HMRC can be done either online or by post.

The authorities strongly suggest that applicants for the Remote Gambling Duty should apply online.

However, registering with any duty can be done using the Gambling Tax Service website.

Should you prefer to register by post, you can only do so for the General Betting Duty and the Pool Betting Duty.

Follow 3 simple steps to do this:​

  • Request the form specific to your business from the HMRC National Registration Unit.
  • Complete the paper yourself and gather any additional documents.
  • Send in your official documents.
Once you receive the form, you should be instructed where to send your application.

Pick the right time to register​

It’s crucial to your application that you do not miss any deadlines. These depend on your official location.

Ensure your registration is complete two weeks (14) days before your business begins if you are based in any of the following areas:

  • The United Kingdom;
  • The European Union;
  • Gibraltar;
  • The Isle of Man;
  • Norway;
  • The Faroes;
  • Iceland;
  • New Zealand;
  • South Africa.
Should your business be based in any other country, make sure you register 31 days before starting your activity.

Keep in mind the tax rates​

The profits of online gambling businesses are generally represented by the difference between the stakes received from their customers, and the winnings paid out to them.

All taxes in the UK are calculated as percentages from the total profits over a specific period.

The current percentages that apply to specific activities falling under the General Betting Duty are:

  • 15% for fixed odds and the total bets;
  • 3% of the financial spread betting;
  • 10% of all other spread bets;
  • Another 15% of commission charges applied to UK citizens.
Don’t forget that you may also need to pay 15% tax for Pool Betting Duty.

Suppose you fail to pay the 15% for Remote Gambling Duty before the deadline specified on the official UK government website. In that case, you will pay 21% of your profits.

Find out if you need a representative​

Many gambling businesses form corporate bodies under a joint authority. When this is the case, they appoint a Group Lead Member to handle HMRC duties.

A business can have several groups or be a member of such a group.

The point of this is to ensure that each group is responsible for one kind of task. In addition, each member is both accountable and accounted for in the tax payments and returns.

Not being part of a group means you need a representative​

The only exception to this rule applies when your gambling business is based in:

  • The European Union;
  • The United Kingdom;
  • Norway;
  • The Faroes;
  • Iceland;
  • New Zealand;
  • South Africa.
The HMRC must approve the appointed representative of your business in the UK.

Establish the accounting period​

This is when different accounting activities take place in a gambling company. It allows the business to report and analyze its financial performance and prepare for tax returns.

The deadlines for filing your tax returns and paying your taxes are set according to your established accounting period.

For UK gambling businesses, the standard period is of three months, but that can change under specific circumstances:

  • You need to opt for three-month periods that run over a whole year;
  • Then, you can choose eight days that determine a non-standard period
When the eight days are through, make sure to establish your accounting periods again, or you will automatically receive the standard pattern.

Fill in tax returns timely​

You must pay your taxes within 30 days after completing an accounting period.

Doing this requires a bit of red tape.​

You can either go to the Gambling Tax Service website after the quarterly accounting period or request a paper form from HMRC.

Whatever you do, make sure you complete the online form or fill in the tax returns! This applies even if you do not have any taxes to pay for a specific accounting period!

This will avert severe penalties.

Keep your records​

Lastly, you need to preserve all financial records from at least four years back.

Each duty demands specific records from the online gambling business, so it's just safer to keep them all on hand.

Failure to show specific records can bring suspicion over the business. This becomes a matter of security-related charges and much more.

Always mind the local taxes​

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While UK citizens can gamble for free in the UK, they will not be able to do so in other countries. For instance, as a British citizen in the US, you may be taxed from 1% to 25% of your winnings.

Off-shore operators that function in the UK will also have distinct policies for UK players. In this case, our strong advice is to scrutinize their official terms before you invest your money.

While losses are deducted from any taxes and charges, this deduction can only happen after you’ve declared your winnings.

In states where this is legally required, withholding such information can lead to severe tax-evasion charges. For this reason, the best way to proceed is to abide by the laws.

So, complete the IRS Form W-2G if necessary, or report to the country’s authorities. Then, file a tax return with the IRS or any other relevant institution.

Make sure you get your money back legally.