Remote gambling: spread betting
What is spread betting?
Spread betting started as a way of speculating on financial instruments and has developed as a new way of betting on the outcome of a sporting event. Consequently all spread betting - financial and sporting - is subject to investment regulation and is regulated by the Financial Services Authority.
There are three basic categories into which bets fall:
- total bets
- supremacy bets
- index bets.
Total bets are decided by the totals of certain numbers in sporting events such as runs in cricket, goals in football, points in rugby or shots in golf.
For example: How many runs will England score in their first innings against Australia?
The spread betting firm might quote 280 - 300 runs (that is the spread). This means that they think England will score between 280 and 300 runs. If the punter thinks that England will get more than 300, he ‘buys’ at the top of the spread, i.e. at the 300 mark. If, on the other hand, he thinks England will get nearer 200 runs, then he or she ‘sells’ at the lower end of the spread, i.e. the 280 mark.
The punter specifies his or her unit stake when making the bet, i.e. in this case the amount per run. The punter might buy at £2 per run at 300. This means that for every run above 300 that England score, the punter wins £2. If England make 400 runs, the punter wins (400-300) x £2 = £200. However, for every run that England make fewer than 300, the punter loses £2. If England only get 200 runs, the punter loses (300-200) x £2 = £200.
If, instead, the punter thought England would do badly, he or she could sell for £2 per run at 280. So for every run below 280 that England score, the punter wins £2. A final score for England of 200 brings the punter a profit of (280-200) x £2 = £160. But every run over 280 loses the punter £2. If England score a total of 400, then the punter loses (400-280) x £2 = £240.
The key difference between spread betting and fixed odds betting is that in spread betting the punter’s stake - in this case £2 - is not the limit of his financial risk. The punter can win or lose an amount which is many times the original stake.
Supremacy bets mean that the interest is not on who will win, but by how much. Bets are generally on the margin of victory or supremacy of one team, player or performer over another.
Index bets mean that where points, runs, goals and lengths are not suitable to measure success, an index can be created which allows prices to be offered on a variety of other sporting events. A different number of points will be awarded to the winner, runner-up, third place and so on.
VAT liability of spread betting
Any consideration for sports spread betting is exempt under Schedule 9, Group 4, Item 1 of the VAT Act 1994 as the provision of facilities for betting. The value of the exempt output is the full amount of the stakes less the money paid out in winnings. Traders should not deduct any gaming duty payable.