Betting Exchanges and VAT

[wit]

As all companies offering a service,

ie. estate agents, dating agencies, solicitors, gas, electricity and many more that match people together, have to pay VAT on their commission,or charges.
is there a reason that exchanges are exempt?

Hi Barry

don’t want to pre-empt the chap on the other thread, but the strict answer to your question is that they are exempt because of the EC Sixth VAT Directive from 1977 (art 13B(f)), and the UK’s Value Added Tax Act from 1994. Schedule 9, Group 4, item 1.

So from long before any betting exchange existed, there has been an exemption from VAT under Schedule 9, Group 4 for “the provision of any facilities for the placing of bets”.

The way this applies to betting exchanges is set out this way in the leading UK commentary on VAT, de Voil’s Indirect Taxes:

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Traditional bookmakers are clearly providing exempt facilities for the placing of bets since they actually take bets and pay out winning punters.

There is no distinction as to the type of betting; thus whether the bet is placed with a bookmaker or via a totalisator organisation, it is still exempt……..

More recently, new means of betting have arisen via the creation of betting exchanges. In a betting exchange, individual punters lay odds on particular events. Other punters can accept these odds. The betting is therefore between two individuals does not involve a bookmaker.

The betting exchange charges a commission for arranging the bet. Commission is however only collected on the winning bets and not on losing bets. The individual punters do not know who they are betting against and therefore the betting exchange acts as undisclosed agent for both parties to a bet.

The treatment of undisclosed agents…..is that the agent is treated as if he were the principal.

Thus, in the example of a betting exchange, the agent would be treated as accepting a bet from the one party and laying it off with the other. The loser would pay his stake plus the losing amount to the exchange and the exchange would in turn pay the amount less its commission to the winner.

The winnings paid would therefore be on a net of commission basis. Neither punter pays any betting taxes.

The treatment of the bets as being made by and to the betting exchange will result in the bets being regarded as exempt supplies, although in some cases this may be irrelevant since the betting exchange may be operated from offshore premises and therefore not be within the scope of UK VAT.

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best regards

wit

[% MAN]

Yet another wonderfully informative post from Wit – thank you.

[TheThrowback]

I think Betfair should have to pay windfall tax – oh, and Barry Dennis should have to pay carbon emissions tax.

[Author]

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