Smarkets faces being hit with £12.8m tax bill
London-headquartered operator discloses liability in Companies House filing and says additional funding may need to be raised
Smarkets has revealed a potentially crippling tax bill of £12.8m over historic outstanding additional taxes relating to business activities between 2012 and 2017, a bill which could potentially force the company to seek alternative funding.
Details of the liability were disclosed by the betting exchange and sportsbook in its 2022 annual report, in which Smarkets reported revenue of £18m for 2022, a fall of 11% year-on-year (YoY) from the £20.2m generated in 2021.
The firm’s losses before tax amounted to £17.7m in 2022, down 6.5% from 2021, with Smarkets’ gross profits slumping 29% to £9m.
Smarkets’ cost of sales increased 21% YoY to just over £9m during 2022, however administrative costs fell to £27m over the same period. In addition, customer funds on deposit also decreased by double digits in percentage terms, falling 18% YoY to £24.8m.
Founded in 2008 by American Jason Trost, the privately owned business based out of London’s St Katharine Docks undertook a strategic review in Q4 2022, resulting in 22 employees being made redundant in January across the firm’s London, Malta and Los Angeles offices.
Smarkets was also forced to curtail its US expansion plans, withdrawing from the Indiana market as part of the cost-cutting measures.
According to the Companies House filings, the tax liability relates to Smarkets operations between 2012 and 2017 in an unnamed jurisdiction.
Bosses revealed regulatory authorities there are demanding payment of additional outstanding taxes “following a court process against a competitor business” after company documentation was submitted by Smarkets in the case.
“The company contests both the existence and quantum of the amount claimed by the authorities,” Smarkets wrote in its filing.
“The board continues to monitor the impact of any new regulatory or fiscal arrangements and their potential impact on the business, however due to exiting the aforementioned jurisdiction in 2017, these uncertain tax positions are not expected in the future,” it added.
The operator has confirmed that based on latest correspondence and legal counsel, it has set aside £12.8m (€14.4m) as of 31 December 2022 to cover the potential tax liability should it arise, but the final amount of the tax bill has not yet been established.
However, Smarkets has said should the payment of this tax liability arise at the same time as a “significant downturn” in revenue, Smarket’s ability to sustain its business would be dependent on securing additional funding from its creditors.
“Given that scenario, the director is confident that the group would be able to obtain the additional funding required to continue operations for at least 12 months from the date of signing the financial statements,” the Companies House filing states.
“The timing and quantum of new funds to be raised is currently outside the control of the director.”
It continues: “However, these circumstances indicate the existence of a material uncertainty related to events or conditions that may cast significant doubt on the group and company’s ability to continue as a going concern and therefore to continue realising their assets and discharging their liabilities in the normal course of business.”
Smarkets last funding round was a Series B round for an unspecified amount in 2021. This included a significant minority investment from Susquehanna Growth Equity (SGE) to mainly fund its US expansion.