Gambling or Investing ?
Gambling is not an allowable expense for a person entering into a Debt Relief Order, however how does it impact on the self-employed people who earn their income from a form of investing?
You may ask why this subject would be important to Money and Debt advisers however this is a matter to be considered when entering a Debt Relief Order (DRO). Gambling is not an allowable expense for a person entering into a DRO however how does it impact on the self-employed people who earn their income from a form of investing.
It is important to complete a client’s business budget sheet showing the income generated by the business and then producing a personal budget sheet, used to complete a DRO application, for the household expenditure. In this instance, there would be no outgoing expense detailed as gambling.
Three important points to remember;
Being self-employed using Contracts for Differences (CFD) would not prevent your client from applying for a DRO in itself provided that expenditure on the CFDs was clearly part of the business statement and not the client's personal statement in line with the guidance on p506 of CPAG Debt Advice Handbook 12th edition. This way the expenditure is not forming an allowable expense for the DRO.
If your client is using the same funds and simply reinvesting them, there is no issue with them drawing an income from it. This would not be viewed as "gambling" as we would know it. It appears the CFD’s requires playing the stock market and "investment banking".
If your client is losing money and then borrowing more money to top up the business for the losses it has sustained, such borrowing and spending on CFDs could constitute 'gambling, rash and hazardous speculation' under Schedule 2ZB (j) Insolvency Rules 1989 (For more information click here) and therefore, could result in a Debt Relief Restrictions Order (DRRO).
3. What is the average derived income if there is irregular income?
An additional problem could be the suitability of a DRO as due to the nature of the clients work as the monthly income is likely to fluctuate a great deal. This could make it very difficult to accurately ascertain whether the client meets the £50 per month available income parameter. A DRO may not be a suitable option where there is fluctuating income as the duty to report increases could prove problematic for the client.
Gambling is not defined in the Insolvency legislation, there is however a definition contained in the Gambling Act 2005 which divides gambling into three categories:
The two types of gambling specifically excluded from the Act are spread betting (wagering on the outcome of an event where the pay-off is based on the accuracy of the wager rather than a simple win or lose outcome) and participation in the national lottery, as they are governed by separate legislation.
Specialist Support consulted the DRO team and they agreed that spread betting would not necessarily preclude an individual from applying for a DRO, however the authorised Intermediary would need to determine several issues e.g.:
The DRO Team would question why if the debtor has not been making sufficient funds with which to service their indebtedness are they continuing with this activity and whether the client was also working.
They also agree that if the debtor’s activities have contributed to their insolvency then the debtor’s spread betting could indeed be considered rash and hazardous speculation and they would certainly be looking to ascertain the extent of the losses with a view to determining whether civil sanctions should be sought.
The DRO Team would also question whether a DRO is an appropriate solution in this scenario, given what would be the fluctuating nature of the debtor’s income, whereby the debtor would need to be reporting on a regular basis whether they continued to meet the qualifying parameters for a DRO. The Team expressed concern that the debtor may have cash invested or held in excess of £1,000.
Good to be aware, of the three types of recognised gambling when advising a client. Specifically as there is no Insolvency legislative definition.
It is important to complete a client’s business budget sheet showing the income generated by the business and then producing a personal budget sheet, used to complete a DRO application, for the household expenditure. In this instance, there would be no outgoing expense detailed as gambling.
Three important points to remember;
- How do you provide evidence on the business financial statement?
Being self-employed using Contracts for Differences (CFD) would not prevent your client from applying for a DRO in itself provided that expenditure on the CFDs was clearly part of the business statement and not the client's personal statement in line with the guidance on p506 of CPAG Debt Advice Handbook 12th edition. This way the expenditure is not forming an allowable expense for the DRO.
If your client is using the same funds and simply reinvesting them, there is no issue with them drawing an income from it. This would not be viewed as "gambling" as we would know it. It appears the CFD’s requires playing the stock market and "investment banking".
If your client is losing money and then borrowing more money to top up the business for the losses it has sustained, such borrowing and spending on CFDs could constitute 'gambling, rash and hazardous speculation' under Schedule 2ZB (j) Insolvency Rules 1989 (For more information click here) and therefore, could result in a Debt Relief Restrictions Order (DRRO).
- What if debt continues to accrue after DRO approval?
3. What is the average derived income if there is irregular income?
An additional problem could be the suitability of a DRO as due to the nature of the clients work as the monthly income is likely to fluctuate a great deal. This could make it very difficult to accurately ascertain whether the client meets the £50 per month available income parameter. A DRO may not be a suitable option where there is fluctuating income as the duty to report increases could prove problematic for the client.
Gambling is not defined in the Insolvency legislation, there is however a definition contained in the Gambling Act 2005 which divides gambling into three categories:
- Gaming (playing a game of chance for a prize),
- Betting on; (a) the outcome of a race, competition or other event or process, (b) the likelihood of anything occurring or not occurring, or (c) whether anything is or is not true,
- Participating in a lottery.
The two types of gambling specifically excluded from the Act are spread betting (wagering on the outcome of an event where the pay-off is based on the accuracy of the wager rather than a simple win or lose outcome) and participation in the national lottery, as they are governed by separate legislation.
Specialist Support consulted the DRO team and they agreed that spread betting would not necessarily preclude an individual from applying for a DRO, however the authorised Intermediary would need to determine several issues e.g.:
- Are any of the qualifying debts incurred due to losses through spread betting?
- Have any credit cards been utilised to fund the said betting?
- Where does the debtor derive their funding with which to carry out this activity?
- Was there any start-up capital and if so what was the source of the funds?
- What is the debtor’s cause of failure i.e. the reason for their insolvency?
- Has the debtor been gambling instead of paying their contractual obligations?
- From an asset perspective does the debtor have more than a £1,000 with which to bet? If so they do not meet the qualifying criteria.
The DRO Team would question why if the debtor has not been making sufficient funds with which to service their indebtedness are they continuing with this activity and whether the client was also working.
They also agree that if the debtor’s activities have contributed to their insolvency then the debtor’s spread betting could indeed be considered rash and hazardous speculation and they would certainly be looking to ascertain the extent of the losses with a view to determining whether civil sanctions should be sought.
The DRO Team would also question whether a DRO is an appropriate solution in this scenario, given what would be the fluctuating nature of the debtor’s income, whereby the debtor would need to be reporting on a regular basis whether they continued to meet the qualifying parameters for a DRO. The Team expressed concern that the debtor may have cash invested or held in excess of £1,000.
Good to be aware, of the three types of recognised gambling when advising a client. Specifically as there is no Insolvency legislative definition.