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UK Extends Gross Profit Taxation Scheme To Betting Exchanges

by Jason Gorringe, Tax-News.com, London

07 November 2002


After fraught negotiations, the UK betting industry has reached agreement with the government over the basis of taxation that will apply to various forms of betting next year, including the rapidly growing betting exchange sector and 'classical' Internet bookies.

Two years ago, the UK Treasury was forced to move from a turnover-based taxation system for betting to a gross profit basis in order to prevent wholesale defections to offshore locations such as Alderney, Gibraltar, Malta and the Isle of Man by telephone and Internet sports-betting firms.

Most of the industry, including Internet betting sites, will continue to pay 10% of gross profits, as before, with spread betting firms paying 2%. But in a new development, betting exchanges will pay 10 percent of gross profits of successive layers, with no aggregation between layers and before commission, instead of 10 percent of gross commissions.

Betting exchanges, or as they are sometimes called, P2P betting, are seen by the mainstream industry as a major threat. Even UK-based exchanges have been exempt from tax until now, given the absence of a bookmaker in the traditional sense, and this cost advantage over the established firms has led to very rapid growth: market leader Betfair.com is now matching an estimated UKP50m of bets a week.

The company said it was pleased agreement had been reached, but complained that the scheme contradicts the principle of a gross profits levy. It wants confirmation that registered bookmakers using the site, as many do in order to lay off liabilities, won't attract a second layer of taxation.


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