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Sports Trading

How to record it

Client has made a profit trading on certain sports, similar to trading the stock market I supppose. He's made a profit of around 1k on the year and says it's just something he dabbled in whilst trade was quiet.  All done through a sole director Ltd Co

Trouble is I havent a clue how to record it, I've looked at investments - current on my VTT+ but it shows as a debit on the balance sheet and nothing on the P+L so that can't be right.  Sales - investments perhaps?  On the opposite side of the coin though, what if he had made a loss on the trading, would I show the loss on the P+L but then disallow it on the computation?

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03rd Nov 2017 14:07

"Trading"
I am not sure what he has been doing. I am fairly certain he has not bought Cycling and sold Flat racing. I suspect what he has done is betting. now in that case apart from the problem of betting shops not accepting bets from corporate bodies it is not business for the purpose of HMRC and so no tax, and it does not meant the definitions under GAAP for inclusion in the accounts, probably, so in reality nothing happened except the company "loaned" him the money, he won on a bet and then paid the loan back to the company and then loaned an additional amount, coincidentally the same as his winnings, to the company.
But all of this depends on what is meant by trading.

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By stratty
03rd Nov 2017 16:26

I believe it is a form of gambling so would be inclined to put the transactions through his loan account.

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04th Nov 2017 12:41

Thanks Guys

It's a betting exchange, and apparently you can use a Ltd Co. He can apparently both buy or sell a bet and also lock in a profit so he wins regardless of the outcome.

I am inclined to put it to the DLA though

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06th Nov 2017 17:36

Just a quick update. Guy wants to put it through his books to boost his profits and is also looking at making it a proper income stream. Also is concerned that HMRC would be inclined to treat it as income because he is trading his bets to churn a profit rather than having a flutter, and doesn't want to fall foul of the taxman because of it.

As far as I'm aware, if doing it as a private individual, it is tax free income, but at what point would it constitute a trade and become taxable?

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By NBWNBW
08th Nov 2017 10:56

HMRC do not view gambling as a trade. If they did, they would have to allow the rest of us to claim trading losses.
As I understand it, a 'professional gambler' does not pay tax on his/her gambling profits.

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08th Nov 2017 11:34

It sounds as though he's acting as a sort of amateur bookmaker who's both backing and laying - i.e. betting on both outcomes hoping to make a small profit whatever happens. Betting exchanges facilitate this since they charge a commission on winnings rather than a built-in profit in the odds. However their commissions wipe out most of the punter's profit so that he has to operate in a big way to make a living.

If he's aiming to make a living or a worthwhile part of his living out of this activity, then it sounds very much like an adventure by way of trade, and he's quite right to be concerned that HMRC will view it as such.

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08th Nov 2017 15:20

george.gill-AT-themacds.com wrote:

If he's aiming to make a living or a worthwhile part of his living out of this activity, then it sounds very much like an adventure by way of trade, and he's quite right to be concerned that HMRC will view it as such.

Thanks George, at what point do you think the line should be drawn? As far as I can tell he's only dabbled with it so far but if a time comes where it's a major contribution to his business then I need to look at putting it through his books rather than putting it through the DLA, which I'm inclined to do this year.

If it was the case that it becomes a trading activity, and going back to my original question, how would I show it in the accounts?

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to legerman
08th Nov 2017 16:42

legerman wrote:

george.gill-AT-themacds.com wrote:

If it was the case that it becomes a trading activity, and going back to my original question, how would I show it in the accounts?

If it is trading activity, then surely the trading is treated like any other trading activity so income = sales and expenses = expenses (cost of sales or admin).

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08th Nov 2017 17:54

HMRC differentiate between company and personal gambling/dealing, with the outcome that a company can and will be taxed on such profits, whereas an individual may not.

Much of the HMRC guidance seems to centre on derivatives, such as BIM56890 and CFM50070.

This suggests it may qualify as a taxable (trading?) activity in the company and so need to be recognised in the P&L and not disallowed in the tax comp.

Not sure how you would do this in VTT+ though - sorry.

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09th Nov 2017 20:23

I don't know that there is any rule of thumb on this. Obviously HMRC won't be very interested in an activity that racks up £50 a year, but once you're into four figures, you're into reporting territory, particularly if the client hopes to grow it in the future.

You may at this stage have the luxury of being able to choose whether it's a corporate activity or the director using his DLA to fund an activity of his own. But I guess the documentation may be a determining factor - whose name is the betting exchange account in? If it's the director's name, that's a strong pointer that it's his activity rather than the company's.

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10th Nov 2017 21:06

george.gill-AT-themacds.com wrote:

You may at this stage have the luxury of being able to choose whether it's a corporate activity or the director
using his DLA to fund an activity of his own.

Very helpful, thank you George. At the moment it is in his own name, but he will make a decision at the end of his next financial year and set up a corporate account with the exchange if he wants to run it as a trade. He's also going to get a written view from HMRC prior to that so he's not falling foul of anything.

Thank you everyone for your comments.

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