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Gambling AccountingWEB Taxpayer's gamble falls flat at tribunal
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Taxpayer’s gamble falls flat at tribunal

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HMRC called bluff at a taxpayer’s claim that all their income came from gambling. The first tier tribunal doubled down on the decision, leaving the taxpayer out of luck.

22nd Mar 2024
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Steven Hague worked in a pub owned by his brother in 2008, receiving wages which were purportedly retained by his family and passed to him as needed to prevent him from gambling the money away.

He had also acquired a property on the basis that he could “flip it” and make a quick profit. The property was sold for an apparent gain of £60,000 in 2007.

Initial HMRC contact

In January 2017 Hague was notified that HMRC intended to look into his tax affairs. This was followed by a meeting where Hague confirmed his main source of income was from playing poker and gambling. He had used some of his gambling wins, in conjunction with some of his pub wages, to purchase his current home for £140,000.

Hague did not keep track of his gambling winnings and losses, as he understood these did not count as taxable income. While he did sometimes bank his winnings, he generally used them to pay for living expenses or to fund future gambling activities.

Hague had not declared any income or gains to HMRC for the nine tax years to 2015/16.

Further information

HMRC requested further details relating to the sold property, as well as bank statements and explanations for any large deposits. As there was no response to this request, HMRC issued a penalty under sch 36 FA 2008 for £300, followed by daily penalties of £15 each, then £30.

In October 2017 Hague replied, also appealing the penalties incurred to date. However, the appeal was out of time and so was rejected. HMRC went over the information supplied and asked Hague to explain multiple payments.

No response was received, therefore HMRC issued assessments under s.29 TMA 1970 and penalties under s.7(8) TMA 1970 (as it was written at that time) and Sch 41 FA 2008 for what it believed was underpaid income and capital gains tax. The penalties were based on prompted, deliberate behaviour.

Overall, HMRC initially assessed for tax and penalties totalling £252,535.

Appeal

Hague eventually replied and again met with HMRC to confirm that all the amounts they were querying were from gambling winnings and therefore not subject to tax. Another late appeal was lodged, which HMRC were willing to accept provided they could review some additional information received.

Following this review HMRC was able to confirm some of the amounts were truly from gambling winnings or otherwise tax free; the assessed amounts were reduced to £67,177.01, with penalties thereon of £43,665.06 (i.e. 65%).

Hague continued with his appeal to the first tier tribunal (FTT) on the grounds that his only taxable income had been from his wages, which he believed had already been taxed. He also claimed to have made a loss on the disposal of the property.

Valid discovery?

The FTT first considered the subjective and objective tests as set out in the Anderson upper tribunal case, which requires that the officer believes the information they hold suggests a shortfall in tax and that this belief is reasonable.

It accepted that both these conditions had been met. In the absence of evidence to the contrary, a reasonable officer would believe that there had been omitted tax when presented with the mystery payments into the bank account. Similarly, in the absence of evidence of sufficient capital expenditure, it was reasonable to believe a taxable gain had arisen.

The latter two years were within the four-year time limit stipulated by s.34 TMA 1970, but for the earlier seven years HMRC relied upon s.36(1A)(b); the FTT agreed that Hague had failed to comply with his section 7 obligations, making those seven years in time.

Correct amounts?

Following the receipt of further information, HMRC reduced their initial assessments to reflect items shown to be non-taxable. The FTT found that Hague had not provided any further information to warrant additional reductions.

HMRC had made ‘best judgement’ assessments and the FTT saw no reason to disturb them.

Correct penalties?

The FTT had no hesitation in concluding the disclosures were prompted. The only matter left to decide was whether they were deliberate.

Hague claimed he believed his wages had been taxed at source by his father, however, he had previously stated that he took takings home for safekeeping and retained some as wages. The FTT therefore concluded that he knew his employment income was untaxed and deliberately chose not to declare it to HMRC. He similarly knew he had a capital gain to report, but again chose not to.

The FTT confirmed the penalties and found no reason to apply a further reduction.

The appeal was dismissed in full and the updated amounts proposed by HMRC were confirmed.

Replies (15)

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By SteveHa
22nd Mar 2024 13:10

I bet he appeals to the UT.

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Replying to SteveHa:
RLI
By lionofludesch
24th Mar 2024 10:45

SteveHa wrote:

I bet he appeals to the UT.

[chuckle]

Hope so.

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By johnjenkins
25th Mar 2024 11:16

I notice that HMRC could confirm that a lot of the deposits did actually come from gambling, reducing the assessment by a lot. Surely in "probability" and the fact that he has proved that he is in fact a gambler, the other deposits could well be winnings.
Of course he could be up to something else.

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By Nebs
25th Mar 2024 11:37

Lets not forget that bookmakers do keep records, and any punter that consistently wins, or even beats the odds with sufficient regularity that the bookies calculate that the punter will win in the long run, either gets banned or has stakes reduced to pennies.

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Replying to Nebs:
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By johnjenkins
25th Mar 2024 11:51

I think he is a poker player (maybe not online) in which case it is possible there are no records.

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Replying to Nebs:
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By Springfield
25th Mar 2024 12:21

Not necessarily. Betting on-line, be it exchanges, spread betting, and on-line poker involve betting against other punters with the house taking a cut. So the house doesn't care who wins or loses, as they take their commission regardless. Their concerns are money laundering and affordability checks. If an on-line punter wins regularly and big on dogs or horses then they will find their account closed quite quickly.

What seems to have happened here is that he was playing poker for cash, and HMRC also accepted that he had also won sizeable amounts betting cash in William Hill and other betting shops, and then received cheques from them which he banked.

The question I would have is - did either his bank, or the betting shops comply with AML? As my dad explained to me when he first took me to a casino in the 1970's, the easiest way to launder money (in those days) was to turn up at a casino with £10,000 of cash, buy the chips, have a drink and a couple of spins of the wheel, then go to the pay-out window and ask for a cheque for your "winnings". In this way cash has been converted to a nice clean cheque from a public company for an apparently legitimate reason.

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Replying to Springfield:
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By johnjenkins
25th Mar 2024 12:45

I used to go, with my half brother (dead now) to the London casinos in the 60's where he would launder his ill gotten gains. He always used to tell me to keep half of my money in the car. Always worked, by the time I got back to the car I couldn't be bothered to go back and lose a few more quid.
If he's telling the truth then scenario is :- wages looked after so bills are paid, rest can be gambled. Winnings banked in order to purchase property. Sounds ok.
If not telling the truth then scenario is :- Money Laundering but with accomplice(s).

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By Rgab1947
25th Mar 2024 12:21

He works in a pub does he not? Bet you a lot of his mates in the pub gave him some solid tax advise.

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By Mr J Andrews
25th Mar 2024 12:39

And what about equally vague Hague - senior ; failure to operate PAYE ? Looks like another good bet for HMRC.

Thanks (2)
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By Mr J Andrews
25th Mar 2024 12:40

And what about equally vague Hague - senior ; failure to operate PAYE ? Looks like another good bet for HMRC.

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Replying to Mr J Andrews:
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By johnjenkins
25th Mar 2024 12:46

You're not getting a second thanks.

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Replying to johnjenkins:
Pile of Stones
By Beach Accountancy
25th Mar 2024 14:37

"Don't be vague, ask for Hague". One for the older readers...

Thanks (1)
Replying to Beach Accountancy:
RLI
By lionofludesch
25th Mar 2024 14:50

Beach Accountancy wrote:

"Don't be vague, ask for Hague". One for the older readers...

The Rotherham pop man?

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Replying to lionofludesch:
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By johnjenkins
25th Mar 2024 15:05

Or the rather nice scotch.

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By petestar1969
26th Mar 2024 11:30

I had a client once who was a second car dealer and also played poker and gambled on horses and football etc.

Funnily enough his car business never made a profit so he never paid any tax......

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