A taxing question

[Posts: 495Joined: 27 Jul 2011, 22:05]

A question for those who have a better memory than me.

In the old days when we had to pay a deduction for tax, levy etc you had the choice of paying it on stake or returns. If you chose the latter did the deduction take place on total returns including stake or just the winnings not including stake. So if you bet £10 on a horse that won at 10/1 and the deduction was 10% did you have £10 (just winnings) or £11 (total returns) deducted ?

[Posts: 2032Joined: 06 Jun 2011, 14:34Location: Bury St Edmunds]

Deduction was on total return.

[Posts: 1076Joined: 12 Jul 2002, 10:58]

Correct.

At the time bookmakers also charged the same for football and other sports for which there was no levy and simply just pocketed the cash.

[Posts: 495Joined: 27 Jul 2011, 22:05]

Thanks, along with hair, hearing and eyesight my memory seems to be going. From what I do remember it was always a bit of a con even on racing. The tax and levy didn't add up to 10% or 9 % when it was changed they just rounded it up.

[Posts: 451Joined: 05 Mar 2004, 21:22]

It was a betting tax, nothing whatsoever to do with the levy, so it was charged on all bets. Bookmakers were taxed at 6.75% and decided in their normal benevolent way to pass this on to customers as 9%, very often rounded up to 10%.

[Posts: 172Joined: 08 Jul 2008, 02:36]

I always used to pay on my stake.............sign of an optimist I suppose

[Posts: 4182Joined: 20 Jan 2006, 11:28Location: The Ainsty of York]

It was a betting tax, nothing whatsoever to do with the levy, so it was charged on all bets. Bookmakers were taxed at 6.75% and decided in their normal benevolent way to pass this on to customers as 9%, very often rounded up to 10%.

I don't think that's correct. Betting Duty was due on Horse Racing bets only, if fading memory serves, though as pointed out above bookmakers surcharged the same on all sports anyway

Government take until the late '80s was 7.5% rounded to 10%, after which it was reduced to 6.75% and 9% respectively. This off-course change coincided with the total abolition of on-course tax

Again, memory fades but I think of the government 7.5/6.75% take, 1% was returned to the sport as 'levy contribution'

It's counter-intuitive but the vast majority of bettors - those who are long term losers - should always have opted for tax-on-returns rather than tax-on-stake as the latter optimistically assumes your bet is going to win whilst the former rather more realistically assumes your bet is going to lose

Nevertheless, the large majority - 75%+ I think - always paid tax-on-stake

"£1 EW, no tax'" Drone would holler down the blower

[Posts: 948Joined: 28 Feb 2011, 13:01]

Betting tax was abolished on October 6th 2001 and replaced by a Gross Profits Tax of 15% (A tax on the profits achieved by bookmakers before operational costs are taken into account - for example, a betting shop takes stakes of £10,000, it pays out £8,500 and is taxed at 15% on the remaining £1,500.)

A government assessment of the effects of GPT after a year found that betting turnover had increased by between 35% and 40%. (The illegal betting market was wiped out and punters also found they could have £50,000 on a 1/5 chance)

Bookmakers GP margin fell from around 23% to around 17%.

Betting exchanges were little more than a fly on an elephant at the time. There growth made betting much more competitive, effectively reducing prices for shoppers (punters) further damaging bookmakers' gross profit margins which now sit at approx 15%.

Media rights payments for racing pictures increased significantly when TurfTv took over the contract for more than half the UK tracks so out of that 15% profit margin bookies had to pay, SiS, TurfTv, levy, Gambling Commission fees, Staff costs, rates, heat/light etc, leaving them with about 2% net profit.

On racing turnover alone they do well to make any profit, hence their constant battles against higher levy costs, hence their frustration with the Horsemen and others in racing who think they are bleeding racing dry. In fact, racing is bleeding them dry making itself a very unattractive product for bookmakers.

Still, the bookies must carry their fair share of blame. GPT was hailed by many so-called visionaries (John Brown oh Hills was its architect and cheerleader) as the best thing to happen for bookmakers/betting/racing etc for 30 years.

In fact, what they really did was wheel in their own Trojan Horse.

I wonder what they'd give now for a return to those 23% GP margins?

They forgot one of the most important tenets in business: turnover is vanity, profit is sanity.

[Posts: 2177Joined: 06 Dec 2003, 19:04Location: Luton]

Great post Joe , and factual to the letter


people would do well do read this a number of times before spouting off


Ricky

[Posts: 2177Joined: 06 Dec 2003, 19:04Location: Luton]

ps Joe , the big power now lies with the courses , as things stand , they are the massive profit makers , the Horsemen will have to battle them hard , or else the Bha have to find a way of neutering them , on this the horse may have bolted to another parish ...

Bittar and pals really are in a hopeless position


Ricky

[Posts: 495Joined: 27 Jul 2011, 22:05]

Interesting post Joe, thanks.

The reason I asked the original question was to see what the correct thing to do was , pay tax on stake or pay tax on returns. I don't think it matters what your expectation of winning or losing is. If all your bets lost your losses would be the same if you won you would only be slightly better of paying tax on stake. If the tax was only on winnings rather than total returns it wouldn't have made any difference. Here is why.

I think the mistake people made was regarding stake and outlay. Assuming for ease we are using a 10% deduction, If you made a £10 bet at 10/1 your total return would be £110 for a £11 outlay. If you paid tax on returns your total returns would be £99 but you have to remember you only outlayed £10. Now lets look what have happened if the outlay in both cases was the same. £10 tax paid, a total of £11 would give you the return of £110, a profit of £99 as before but, if you did the same outlay tax on returns, you would bet £11 to win that would give you a total return of £121 - £12.10 = net return of £108.90 a profit of £97.90. Therefore you were slightly better off paying tax on. If your bet lost you lost the same amount £11.

If the tax had only been taken out of winnings only your profit would have been £99. Hence the reason for my question.

Now don't ask me why I am thinking of this 11 years after the event. I don't know.