HMRC internal manual

Business Income Manual

BIM22019 - Meaning of trade: exceptions and alternatives: betting and gambling - element of existing trade

There are exceptional circumstances where a trader may enter into a ‘bet’ in the course of trading activities. An example would be where the ‘bet’ is used to hedge the interest rate on a loan for the business.

The cases of Down v Compston [1937] 21TC60 and Burdge v Pyne [1968] 45TC320 show that to be taxable, betting wins must come from the carrying on of the trade not merely from an opportunity presented by a trade.

In Down v Compston [1937] 21TC60 a professional golfer attached to a golf club habitually engaged in private games of golf for bets of varying amounts and won substantial amounts. He was found not to be liable to tax on professional income on the basis that the bets did not arise from the playing services and that there was no organisation to support the view that he was carrying on the business of betting on the games of golf.

In Burdge v Pyne [1968] 45TC320 the proprietor of a registered club which provided gambling facilities, including a card room, won considerable sums of money from three-card brag which he played regularly with members in the card room. He was taxable on his gambling winnings.

Pennycuick J stated at pages 323 and 324:

‘…the Appellant was carrying on the business of a club; upon the club’s premises he habitually played the game of three-card brag with other members of the club; and at that game he was invariably successful… Given those facts, it seems to me that the Commissioners came to the right conclusion in finding that the winnings of the Appellant from three-card brag did represent a receipt by him in carrying on the business of the club. He owned the club; he carried on this game upon the club premises as such; and, moreover, it was members of the club in whose company he played the game and from whom, it appears, he invariably won money. I see no reason to think that that particular activity on the part of a club proprietor is not an activity in the course of carrying on the business of the club, and consequently winnings from that activity fall into the receipts of the club for the purpose of ascertaining the profits of its business.

[the Appellant] contended that these winnings should be treated as the fruit of a private activity. outside the business of the club, and accordingly should not be taken into account in computing the profits of the club.’

He went on to distinguish Graham v Green [1925] 9TC309 (see BIM22017) because:

‘here there is a trade whereas there the person charged was not carrying on any trade at all.’

Of Down v Compston [1937] 21TC60 he said:

‘In that case the vocation afforded in some sense the opportunity for making the bets, in that Mr. Compston would not have had companions on his rounds against whom to bet if he had not been a professional golfer, but the bets did not arise out of his vocation. Again it seems to me that that case is wholly distinguishable [because] in the present case the club was not merely the occasion that enabled the Appellant to play private games of cards. The playing of cards was part of the activities of the club, and his winnings from those cards, it seems to me, arose in the full sense out of the carrying on of the club.’

It should be noted that the findings of fact show that the taxpayer or one of his family had to be present whenever cards were played and always acted as dealer. The findings also show that the cards were an integral part of the club and the means by which it made a profit.