Posted on: 18th October 2016
“Professional Gamblers” can be self-employed
As you know, the activities of a day trader could be deemed by HMRC to be one of the following:
- The carrying on of a trade as a self-employed individual, in the same way any individual carrying on a business activity is a self-employed;
- The activity of a private investor; or
- Deemed to be similar to gambling where earnings from day trading are not taxable.
Although gambling winnings are not liable to tax, there are circumstances where HMRC consider “professional gamblers” to be carrying on a self-employed trading activity. HMRC provide a specific example in their Business Income Manual at BIM22017, where a professional gambler receiving money for appearing on a television programme is providing a service to a customer i.e. the television company, for reward. However, HMRC do note that whether the professional gambler’s winnings are profits derived from a self-employed trading activity will depend on the facts.
A tax case which highlights how the specific facts of a case are vital to determining whether a gambler is deemed to be self-employed is Hakki v Secretary of State for Work and Pensions (2014) EWCA Civ 530. Mr Hakki made a living from his winnings as a poker player. When the mother of Mr Hakki’s children made an application with the Child Support Agency that an order be placed on Mr Hakki to pay child maintenance, Mr Hakki opposed the application. Mr Hakki objected on the basis that his gambling winnings did not constitute earnings.
This is a complicated case as it involves the child support, social security and tax regimes and the respective regulations and legislation.
In deciding the case it was determined that the definition in the Social Security Contributions and Benefits Act 1992 as stated below, was consistent across the child support, social security and tax regimes.
“self-employed earner” means a person who is gainfully employed in Great Britain otherwise than in employed earner’s employment (whether or not he is also employed in such employment).
Mr Hakki’s argument was that his poker activities did not fall into the above definition.
The original decision went against Mr Hakki and was appealed. However, it was again found that Mr Hakki should make maintenance payments, on the basis that Mr Hakki’s poker playing was very much like a job. It was noted that Mr Hakki had his own website and had made television appearances playing poker.
Mr Hakki took his case to the Court of Appeal where it was found that the original decision that Mr Hakki could be in gainful employment, was correct, depending on the facts. However, given the facts of Mr Hakki’s specific case, he should not have been found to be carrying on a self-employed activity. Mr Hakki’s appeal was upheld.
Mr Hakki’s case highlights the complexities involved in interpreting tax legislation and tax case law. In cases such as these and is often the case with our day trader clients, there is never a straightforward answer as to whether their day trading activities will be deemed not to be taxable by HMRC. When it comes to whether a gambler, or indeed a day trader, is taxed on their winnings, all the circumstances surrounding the individual’s activities should be thoroughly investigated and reviewed against HMRC guidance and tax case law.