People love to bet, and it’s easy to understand why – the excitement of betting, the accessibility of online betting, and the possibility of big wins make for exciting stories that can be shared with friends and family. Unfortunately, betting also has some financial consequences that many people may not be aware of. In this article, we’ll discuss how much taxes you have to pay on your betting earnings, how they’re calculated, and whether it’s more or less than you’d think.
How Much Taxes Do You Pay on Betting Winnings?
Before we begin, it’s important to note that the majority of bets you make while playing online won’t be taxable, as per the law. This is because the majority of online bets take place within the UK, and bookmakers are based here. However, if you’re playing in countries where gambling is legal (but taxed), then the stakes you’re playing for will be treated as income and taxed accordingly – so check with the government’s tax website in case you’re not sure.
For simplicity, we’ll assume that you’re playing in an area where gambling is legal and taxable. If you’re playing on a mobile device, you’ll also need an online gambling app, as mobile browsers don’t allow for the certification of gambling sites. Once you’ve downloaded the app, make sure you read the terms and conditions carefully to ensure you’re playing on a legal site.
The Basics Of Taxes On Betting Winnings
In order to determine how much taxes you owe on your betting earnings, you need to know how they’re calculated. This, in turn, depends on a number of factors, including:
- Whether you qualify for relief from income tax either through a personal or business loan, or a gambling debt for example;
- Whether you played for fun or for money;
- How much you won or lost; and
- Whether you’ve declared any of this income to the Revenue.
If you do qualify for relief from any type of taxation, either through a loan or a donation to a charity, then you won’t have to pay any taxes on the money you win. Similarly, if you have a business and plan on using some of your winnings to fund further growth, then you can apply for a loan via an entrepreneur’s loan scheme, which will make you eligible for an interest free loan.
Qualifying For Tax Relief
If you do play for money, then you’ll need to make sure that you qualify for the relief that you’re entitled to. To do this, you need to establish whether you’re in a low or high tax bracket. If you’re in a low tax bracket (you earn less than £150,000 per year), then you’ll likely be entitled to some form of tax exemption or relief where applicable (this could include the ability to offset your losses against your income, or a reduction in your marginal tax rate, amongst others).
If you’re in a high tax bracket (you earn more than £150,000 per year), then you might not qualify for any form of tax exemption or relief, although you might still be able to get some form of discount or reduced rate where applicable. Once you’ve established that you’re in a low or high tax bracket, you can begin calculating how much taxes you owe on your betting earnings. For more information on tax rates for different income levels, visit the government’s tax website. You can also use the IRS’s interactive tool to determine your exact tax liability.
As mentioned above, if you do not qualify for any form of tax relief or exemption then you’ll need to pay full income tax on your winnings. In most cases, the amount of tax you’ll have to pay will be calculated using the same tax rate applicable to the person or organization you played against (so if you lost, you’ll need to pay the person’s or organization’s rate, etc.).
Calculating Your Taxes
So, how much taxes do you pay on your betting earnings? This will depend on a number of factors, including the type of bet you make and the rate of exchange you use. Let’s examine two scenarios:
Scenario 1: Pound Sterling As Your Currency Of Choice
Let’s say you’re a professional gambler who travels abroad a lot for work. You may use pound sterling (GBP) as your currency of choice, in which case, almost all of your bets will be taxable. However, if you’re playing on a site that accepts pounds as a valid currency, then you’ll only need to pay tax on the portion of your winnings which exceeds £100. If you win £100 on a £10 bet, for example, you’ll only need to pay £10 in tax. The remaining £90 will be refunded to you, as the site will have taken care of the withholding tax for you – meaning you’ve actually earned £100 and don’t need to pay any tax.
Scenario 2: Euro As Your Currency Of Choice
If you’re a sports fan who often watches football matches abroad, then you might want to use the euro (EUR) as your currency of choice. Like the pound sterling, the euro is also a widely accepted currency and, as a result, almost all of your bets will be taxable. But like the pound sterling, the euro is not necessarily accepted everywhere, so if you play on a site which does not accept euros as a valid currency, then you’ll end up having to pay additional charges when converting your winnings to euros before cashing out.
The Effect Of VAT On Taxes
Since 2014, VAT (Value Added Tax) has been increased from 5% to 20% on food and drink, and since September 2017, it has been increased again to a total of 25%. The effect of this is that all bets now have an additional cost to them, as the bookmaker will include the VAT charges in the price of the ticket.
This will increase your tax bill by quite a bit. For example, if you have £100 in winnings and you live in the UK, then you’ll have to pay £20 in income tax and £5 in VAT. This is because, although your £100 represents an actual money gain, part of it is accounted for by the fact that the purchase of food and drink has increased in price due to VAT.
In some instances, this will be payable at the same time as your gambling winnings – so if you’ve just won £100, you’ll need to pay the £25 in additional income tax and £10 in VAT immediately. In others, it will be added as a payable amount to your account at the end of the tax year.
Should You Report Your Gambling Winnings?
Whether you qualify for tax exemption or relief depends on a number of factors, including how much you win, how often you play, and whether you’re playing for fun or for money. If you do not qualify for any form of tax relief or exemption, then you’ll need to report your gambling winnings. In most cases, this will be a simple matter of filling in a form, but in some instances, you may need to declare your winnings to the Revenue. Just remember that if you do not report your income, then this may lead to problems in the future, especially if the stakes and/or winnings increase.
In summary, if you’re reading this and are wondering whether you should report your gambling winnings or not, then the answer is probably yes. It’s fairly straightforward and most people will have no problem with it. Of course, if you don’t want to report it then you don’t need to, but it’s important to understand the implications before you make a decision.
Final Takeaway
To end on a high note, let’s discuss some general guidelines that might assist you in deciding whether or not to report your gambling winnings. First off, if you play for fun, then you should not report your winnings. This is because, as we’ve established above, fun-seeking activities often bring with them additional expenses and taxes which the individual might not have anticipated. If you do decide to report your fun-seeking activities, then you should do so using an accountant or someone else with experience in this area.