Betfair Clients Targeted in Inland Revenue Investigation

By Richard Fletcher and Alistair Osborne, London Telegraph

The taxman is understood to be investigating the use of the exchange by licensed bookmakers and in particular whether they are using it for personal bets or as part of their business – by "laying off" bets to balance their books.

A number of licensed bookmakers are thought to be among Betfair's largest "high-rolling" customers.

A Betfair spokesman said: "To avoid any potential confusion, licensed bookmakers should ensure proper segregation between their professional and personal use of Betfair – with separate Betfair accounts funded by different bank accounts."

Disclosure of the probe is likely to re-ignite a row about the use of the site by licensed and unlicensed bookmakers to lay bets.

Traditional bookmakers have long argued that clients of Betfair – which operates like a stock exchange, matching those who want to place and lay bets – avoid the 15pc gross profits tax that they should pay when acting as bookies and fail to make any contribution to the levy that funds horseracing. This takes another 10pc of major bookmakers' gross profits.

"We hope the fact that they are floating will force them to be more open about who is laying bets on their website. I'm looking forward to seeing them lift the kimono," Ralph Topping, the William Hill chief executive, told The Daily Telegraphearlier this week.

Paul Roy, the British Horseracing Authority chairman, has accused Betfair of disrupting British racing's finances with "severe consequences". He said: "It seems certain that some customers of Betfair and other exchanges that carry on the business of receiving or negotiating bets... should be paying levy."

Betfair, which pulled a planned float in 2005, is believed to be seeking a valuation of at least £1bn. Founders Edward Wray and Andrew Black, who set up the betting business in 1996, each plan to sell about 10pc of their holdings. They have a combined stake of 22.5pc.

Unveiling plans to float earlier this week, David Yu, chief executive of Betfair, said the listing would give the company an acquisition currency for share-based deals in a consolidating betting market and accelerate the group's growth. Morgan Stanley and Goldman Sachs, which was behind the controversial Ocado float earlier this year, are advising.

Full-year figures released last week show a 31pc fall in earnings before interest, tax, depreciation and amortisation to £44.7m in the year to April 30 2010 when revenues rose 13pc to £341m. Pre-tax profits fell from £47.5m to £17.8m.