UK Treasury Considers Second Effort to Change Taxation Scheme for P2P

Despite recommendations by the U.K. Levy Board, traditional bookmakers in England are still pushing for new tax codes that would lessen betting exchanges' competitive advantage.

The British Horseracing Board is supporting an amendment to the budget that would do just that by increasing the amount of taxes paid by betting exchanges.

The proposed amendment materialized after John Healey, economic secretary to the Treasury, met with officials from major high street bookmakers, who were lobbying for help in what they claim is an unfair advantage for betting exchanges. Bookmakers say Betfair operates in the United Kingdom without having to pay the same taxes as traditional bookmakers.

The amendment brought before a House of Commons Standing Committee on Friday by George Howarth MP, a former Home Office minister. A decision is expected this week.

Meanwhile, Betfair.com, the world's leading betting exchange, is fighting mad. The group argues that Howarth's role in the process represents a conflict of interest because he receives between £15,000 and £20,000 a year as an advisor to British bookmaker William Hill.

Under the proposed amendment, instead of exchanges paying 15 percent of gross profits (interpreted as the commission they receive from customers) to the Treasury, they'd pay 15 percent of the profits made by successful layers.

It is estimated that the amendment would increase the betting exchanges' tax bill by between £20 million and £30 million a year and would exert pressure on Betfair and other exchanges to increase their commission charges, thereby reducing their competitiveness.

Betfair spokesman Mark Davies, outraged when he heard about the amendment, said the plan is appalling and totally disregards months of debate on the subject.

"Customs and Excise spent four months consulting intensively, using independent advisors before making their recommendation, which was adopted in the budget," Davies said. "They saw all the figures, knew exactly what the implications were and heard vigorous arguments from both sides. They made their independent assessment and came out against William Hill."

Davies feels Howarth is merely proposing an amendment that was considered by government officials during the Levy Board's review of the betting scheme.

"Now Howarth, who is paid by William Hill, tables an amendment to do something that the government has already rejected," he said. "He is doing it because the big bookmakers have asked him to. It is a disgrace."

Howarth told the Racing Post Thursday that his goal was simply to make up for a decrease in revenue to the Treasury.

"I have no idea why Customs and Excise did not recommend this method, but it was probably because of a perceived difficulty in collecting the tax through a third party," he said.

At the heart of Howarth's argument, though, is the often heard claim that much of the business generated on betting exchanges comes from commercial bookmakers looking for an easy way to even their books and protect their business.

"I am not against betting exchanges," he said. "For punters, they are a good idea, but a lot of people who use them aren't punters in the normal sense, and when bookmakers like Barry Dennis use an exchange, the transaction is either between a business and a punter, or a business and another business, without the usual tax liability."

Officials with Betfair readily admit that the claim is true. The amount of commercial business done on Betfair, however, has been the source of much debate.

"It all hinges on a difference of opinion about who uses the exchanges," Howarth said. "The government's information is that it is mainly used for leisure. The bookmakers believe otherwise, and the economic secretary has agreed to meet them to resolve the matter."

Howarth said his amendment came after the Levy Board's review because he wasn't "invited" to submit his views.