Bet Exchange News - March 2004

The following story was posted by Bobthebuilder on the Betfair General Betting Message Board and was universally hailed as a brilliant and incisive piece of writing that deserved a wider audience. So here we go, enjoy the story of Bob and Julian:

This is a completely fictional story about two professional gamblers, lets call them Bob & Julian, and the tax that they would currently pay.

Bob is a fan of betting exchanges. He enjoys betting there because of the lower margins, that he can back groups of selections easily by pressing the lay button, that he can trade and offset positions and that his account doesn't get closed down as soon as he backs three winners. Bob doesn't have any inside knowledge, but over time he wins more than he loses, and makes £20,000 a year betting on exchanges. Over the year he has paid £10,000 in commission to the exchange. The exchange pass on £1,500 in gross profits tax to the government directly from Bob's commission payments, and a further £1,500 in gross profits tax from commission payments of the people Bob has bet against.

By Bob betting on the exchange the government generates a total betting tax of £3,000 a year.

Julian doesn't like betting exchanges, he prefers the traditional bookmakers. As a racing insider, his account is kept open by the big bookmakers even though he is a winner. His insider information could be useful to them in deciding which horses can and cannot win, so they allow him to bet. With his insider knowledge Julian also makes £20,000 a year in betting. However he does not pay any commission payments, so none of his betting generates any tax for the government. In actual fact Julian's betting reduces the profits of the big bookmakers, and therefore reduces the governments betting tax by £3,000.

Bob is concerned that there is £6,000 difference in tax contributions between two people doing similar work and earning the same amount but thinks it is just one of those things in life and doesn't get upset by it.

Then one day he reads in the newspaper that the government wants a level playing field which sounds like a great idea. Imagine his surprise when finding out the government believe that the problem is not with the person taking £3,000 out of the tax system, but with exchange clients like himself who already pay into the system.

He wonders if this is not a palpable error?

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