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Gambler comes up trumps against HMRC

The FTT quashed assessments and penalties topping £420,000, after finding the taxpayer’s income was derived from his gambling activities and was not taxable trading income.

17th Apr 2020
Tax Writer
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PAIR OF ACES AND POKER CHIPS
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In October 2013 HMRC started to examine Simon McMillan’s tax affairs [TC07595]. McMillan had not filed a tax return for any of the years in question, nor had he received notice to file a tax return from HMRC under TMA 1970, s 8.

Alleged trading activity

HMRC officers believed they had made a discovery under TMA 1970 s 29, as McMillan’s bank statements revealed frequent and regular deposits into his bank accounts, which suggested that trading had occurred.

HMRC held that this conclusion was a reasonable one to reach as McMillan produced no evidence to support his claim that he was a successful gambler, and that in any event it was improbable that McMillan would have consistently beaten the bookmakers.

As a result of this discovery, on 5 February 2018, HMRC issued McMillan with eight assessments totalling £290,928.56 (including interest) under TMA 1970, s 29 relating to tax years 2006/07 to 2013/14. On 6 February 2018, HMRC issued related penalties for failure to notify totalling £132,193.25.

Funds a result of gambling

McMillan maintained that he had taken up serious gambling between 1999 and 2010. This took the form of an elaborate system of betting on British and European football results as well as taking part in high-stakes private poker games.

By 2010 McMillan recognised that his unhealthy lifestyle could not continue and he spent the next two years rearranging his life.

As he had operated entirely in cash while playing poker and gambling (to avoid unwelcome attention at bookmakers), he began to take funds from his safe and distribute them across multiple bank accounts.

This was also supported by evidence heard from six other witnesses, who all confirmed that the taxpayer held no employment or self-employment between 1998 and 2010 and had been an active gambler during that period.

Lack of records not in point

McMillan had not kept any records detailing his gambling winnings, and any records he did have in relation to his football bets had been disposed of in 2010 when he stopped gambling.

On this point of lack of records, HMRC drew the FTT’s attention to an observation made in Brimelow v Price (1965) 49 TC 41:

“If a man makes substantial sums of money in betting - and a number of people do so - it is not unreasonable to expect him to keep records of his betting transactions so that, if he is subsequently challenged by the revenue authorities to explain an increase in his wealth, he can satisfy them that it is not due to any undisclosed taxable profits but to his betting winnings. 

“If he chooses not to do that, he runs the risk of having attributed to taxable profits what, if he kept records of his transactions, he might have been able to convince the authorities were in fact untaxable betting winnings.”

The FTT found this argument held little sway in the current appeal. The taxpayer was only required to keep any records for the tax years in question until 31 January 2013. As HMRC’s enquiries began in October 2013, the statutory obligation to retain records had ceased, (no fraud or concealment had been suggested).

No taxable income

The FTT noted that it was not in issue that winnings from gambling do not amount to a trade and are not taxable. It also referenced HMRC guidance BIM22015 “Meaning of trade: exceptions and alternatives: betting and gambling - introduction” on this point.

Further, the FTT found that HMRC had not shown that McMillan was employed or engaged in any trade. The FTT commented that McMillian appeared to be a shrewd and intelligent person, whose mode of operation when betting was well beyond the skill or sophistication of the average sports gambler, and was credible.

As such, the FTT found that McMillan had no taxable income source, save for bank interest, for any of the periods for which the discovery assessments were raised, and that none of the assessments nor their related penalties could stand.

Comment

Although HMRC may have had reason to suspect, based on the bank statements alone, that the taxpayer had a trade, it was clear during the hearing that the taxpayer’s income for the period in question related to gambling activities and so was not taxable.

While a lack of betting records did not derail this taxpayer’s appeal, anyone engaged in substantial betting activity would be wise to keep sufficient records to protect their position should HMRC ever enquire about the source of funds.

Replies (3)

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By richard thomas
17th Apr 2020 15:32

This decision simply reinforces my view that the standard of investigation in HMRC gets worse and worse. This case also shows the possible illegality of HMRC's conduct. Para 9 of the decision says that the case was reviewed no doubt under ss49A to 49I TMA and that the "initial" decision of the reviewing officer was (quite rightly) to uphold the appeals. But it seems that the then case officer, Mrs J Acreman, somehow persuaded the reviewing officer to uphold the assessments.

If the initial decision of the reviewing officer had been communicated to the appellant then that ends the matter as s 49F TMA provides that that communication is deemed to constitute a s 54 TMA agreement. There is no ground whatever for going back on that agreement.

If it had not been communicated to the appellant then I still cannot see on what basis Mrs Acreman intervened. Nothing in the HMRC Manual ARTG suggests that the case worker is given any role in the matter beyond being consulted in appropriate circumstances. It flies in the face of everything HMRC says about reviews being "independent" if the case worker is allowed to reverse the initial decision before it is communicated to the appellant.

And why did no one in HMRC recognise that however suspicious the background, an assessment on a person to the effect that they have made profits from trading requires HMRC to show some evidence of what this trade was. They didn't (para 15). They didn't resort either to the busted flush (sorry!) of a "miscellaneous income" assessment.

Where is the quality assurance or just simple management? Missing. Why did no one in the Solicitor's Office stop this case going further?

This is not the first time, either. I have myself given two (at least) decisions in cases where no trading could be identified which readers here as well as HMRC might find helpful:

1. Chadwick (as trustee in bankruptcy of Oduneye-Braniffe) v The National Crime Agency [2017] UKFTT 656 (TC) (30 August 2017)

2. Ashraf v Revenue and Customs [2018] UKFTT 97 (TC).

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Replying to richard thomas:
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By unearned luck
21st Jul 2020 00:41

.

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By Julian Stafford
20th Apr 2020 09:48

Richard - good to see you haven’t lost any of your critical faculties in requirement. Spot on as usual.

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