Replies to Queries

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Replies to Queries — 4

The hustler

My client is a full-time poker player. Each year he pays to enter a number of international tournaments, including the world championships in Las Vegas. There can be substantial prize money for entrants who finish at or near the top of such events. In the past, I have not declared either tournament entry fees (which can be several thousand pounds) or prize money on his tax return; i.e. I have treated the whole exercise as gambling.

My client has now been offered a sponsorship contract, whereby he will be paid a maximum of £80,000 per year, in amounts 'designed to cover the cost of the entry fees' to various tournaments, which are specified in the sponsorship agreement and it is a condition that he competes in all of them. The consideration is that he wears the sponsor's branded clothing at the events. The contract is silent as to prize money, and my client tells me that he is entitled to keep all winnings.

I would appreciate readers' guidance as to how to play this hand with the Revenue. Is the 'sponsorship' Schedule D income? Are any prize monies taxable? If so, then presumably entry fees, travel and accommodation become trade expenses.

(Query T16,499) — Cardshark.

The Revenue (and the courts) has always taken an ambivalent attitude to taxing the activity of gambling. As a class, gamblers are not expected to beat the odds and the Revenue is unwilling to accept claims for allowing the resultant losses to be offset against other, taxable, profits. Readers are referred to the article on this subject, 'Still in Luck' by Jolyon Maugham (see Taxation, 18 July 2002, page 425).

When the Revenue has attempted to tax the profits arising from gambling, the judiciary has been largely unwilling to lend support. The case of Graham v Green 9 TC 309 wrestled with the question of whether to tax a man who made a living from laying bets on horse racing. The judge struggled with words to describe his finding that this was not a taxable vocation, concluding that betting was a habit, and 'there is no tax on a habit'. This was followed in Down v Compson 21 TC 60, which decided that winnings from bets taken by a golf player were not taxable, even though the player was a professional golfer.

To be taxable, the gambling needs to be undertaken as part of a larger more structured organisation which is more clearly a trade or vocation. This was found in Burdge v Pyne 45 TC 620, which concerned the winnings of a club proprietor from card games conducted on the club's premises. This was found to be an integral part of the business of running the club, and thus taxable as part of the club's takings.

Turning to the present query, it is not disputed that 'Cardshark's' client's winnings from playing poker clearly fall within the exemption from tax illustrated in Graham v Green. Is this changed by the acceptance of sponsorship money?

The answer must clearly be no. The client has not changed anything about the way he carries on his activity; it is still gambling against his fellow players in competition.

The sponsorship income, however, has a more 'commercial' flavour to it. He is providing a service to his sponsors (advertising their clothing) in return for remuneration. This has an element of 'trading' about it. The client is able to set off expenditure 'wholly and exclusively' incurred for the purposes of the trade (TA 1988, s 74). 'Cardshark' notes that a condition of the contract is that his client competes in all of the tournaments and that the sponsorship income is payable in amounts 'designed to cover the costs of the entry fees'. It would seem that these fees are an expense that would be deductible from the sponsorship income. The same would apply to other expenses incurred in attending the tournaments, although there would also be the question of a 'private proportion' as these would be incurred in any event as part of the client's 'non-trading' lifestyle. However, I do not think that it is right to be over ambitious with claiming expenses, as I do not see that any loss would be allowable against other income.

The result of this is that there would be a reduced taxable profit arising from the sponsorship contract, and any winnings from poker playing remain tax free. It may be worth 'Cardshark' and his client putting the facts before the local Revenue office and obtaining agreement to this suggested treatment. In any event, a record should be kept of winnings and expenses in order to justify the accumulation of wealth in the event of any subsequent enquiry.

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