Gambling winnings or earnings from employment?

The taxpayer marketed a scheme ‘Alchemy’ under which an individual entered into two transactions with a financial bookmaker H. The first was a spread bet contract which depended on the growth of a reference index of five hedge funds. A related call spread option was entered into based on the same basket. If the value of the basket grew by a defined amount within a specified period the individual would win under the bet and make a loss under the call spread option and vice versa if the funds failed to grow as required. The individual set a cap on the maximum profit or loss under each contract.

After entering the transactions in each case the call spread option was novated to the company. When the bet was successful the net effect was that the taxpayer paid a sum to H equivalent to...