UK Tax Scheme for P2P Holds up, for Now

Leading betting exchange Betfair.com is confident a U.K. tax scheme agreed to earlier this year, following a four-month review, will remain intact.

Officials with the Customs and Excise office poured over records of betting exchanges and heard arguments from traditional bookmakers on the best course of action for taxing the growing sector of the sports betting industry. The traditional bookmakers argue that betting exchanges have an unfair advantage by not paying the same taxes they do.

Earlier this year HM Customs and Excise announced it would be instituting a 15 percent tax on gross profits (interpreted as the commission they receive from customers).

As the budget worked its way through the parliamentary process last week, bookmakers once again tried to force the likes of Betfair and other betting exchanges to pay steeper taxes.

George Howarth MP brought an amendment to the budget on Friday before a standing committee in the House of Commons. Under the proposed amendment, instead of exchanges paying 15 percent of gross profits, they would have to pay 15 percent of the profits made by successful layers.

Not only did the amendment show up at the 11th hour, Howarth came under heavy public criticism after it was discovered he was a paid advisor to William Hill. Although Howarth's actions were legal, and open, Betfair's communications director, Mark Davies, jumped on the issue, saying Howarth was acting only in the interest of William Hill.

"I think Joe Public would be horrified to know in this day and age that someone can just bring up amendments whenever he wants despite a thorough, four-month review by Customs and Excise," he said.

The amendment was almost identical to the proposal bookmakers put forth before HMCE during its review.

"He is amending something that the government already voted against; it is an embarrassment," Davies said last week.

The amendment was pulled after subsequent public outcry.

Howarth said it was yanked in exchange for a meeting with John Healey, economic secretary to the Treasury, over the issue. Davies is confident that no back-door deal will be struck as a result of the meeting.

"I think (the Treasury) agreed to meet with them out of courtesy," he said. "They will present their argument, and the Treasury will probably tell them, 'We have heard all these arguments before and seen their books and we are going with our plan.'"

There is no time set for the meeting, but Davies predicts it will come sooner rather than later. The House of Commons will take its summer recess in June, and the budget has to be in place when they leave.

Davies restated his view that the bookmakers' argument is based on misinformation.

"Customs and Excise had a thorough review of our books," he said. "We opened them up for them and they saw everything. They know what they are dealing with, and the bookmakers continue to think they are dealing with something else."

Last week Howarth said the majority of business generated on Betfair and other person-to-person betting exchanges was generated from commercial bookmakers who were allowed to offset their books without having to pay corporate taxes. Betfair has always admitted that a portion of its business stems from commercial bookmakers and on-track bookies looking to level their books, but the proportion of that business isn't as high as what William Hill and others want to believe, Davies said.

Davies was also quick to point out that more than a year ago, betting exchanges like Betfair and Flutter, a site that Betfair eventually bought, were seen as a niche market and dismissed by high street betting shops. But, as the popularity of P2P betting has risen, so too has the efforts of traditional bookmakers William Hill to keep exchanges at bay.