BETFAIR may quit the UK over a proposed tax increase and government inaction over offshore gambling websites, it emerged over the weekend.

City A.M. understands the online bookmaker, which only last week confirmed it would go ahead with a planned £1.5bn flotation on the stock market, has drawn up a contingency plan that could see it copy rival William Hill in moving its operations to Gibraltar.

The bookmaker could save millions in tax by moving offshore as it would not be subject to the horseracing levy – a 10 per cent tax that all but the smallest bookmakers in the country have to pay on profits from betting on horse racing.

Betfair feels it is being unfairly targeted by the British Horseracing Authority (BHA) in a longstanding row over the levy.

The BHA argues professional bookies, who should be subject to the levy, use online exchanges like Betfair to conduct their business and avoid paying the tax, a charge the bookmaker has always refuted. However, funds raised by the levy have fallen from £115m to £75m in three years.

Last year Betfair paid £6.1m in levy payments, plus another £1.25m voluntary payment in respect of its overseas customers betting on UK horse racing.

While the company said it had no immediate plans to quit the country, a source said that it had made a contingency plan should it consider itself disadvantaged by the government’s failure to regulate offshore gambling websites and the BHA’s plan to raise the levy.

A spokesman for the company said: “No decision has been made but like every company Betfair puts in place contigency plans for the risks facing it business.”

Rival bookmaker William Hill moved its online and telephone betting business to Gibraltar in June where gross profit tax (GPT) is only three per cent compared to 15 per cent in the UK and where it is not subject to the horseracing levy.

In March, the Department for Culture Media and Sport (DCMS) launched a consultation into the regulation of offshore gambling websites and betting exchanges. These have exploded since a 2005 act created the Gambling Commission to regulate betting in the UK.

A source close to the situation said Betfair had heard nothing from DCMS in recent months on offshore betting regulation, despite the consultation ending in June, adding it was “the idea of the previous government.”

Meanwhile the company’s listing prospectus says Betfair’s new Dublin office – which will house around 100 staff – will “provide the Betfair Group with additional flexibility as the regulatory environment evolves”, a phrase considered to be a warning to the government to take action.