A lot of people don't seem to be able to work out their returns from an each way bet, indeed, many don't know if they've got a return at all.
Starting from the beginning, an each way bet is actually 2 bets. If you bet £1 each-way on a horse, the bet will cost you £2. The first part of the bet is that you have £1 on your named horse to win. If it wins, it pays out at the SP price. For example, if a horse wins at 20/1, you have £1 on the winner of the race, so you will get £21 (including your stake) back from the first part of your bet. So far, so easy.
Your second bet is that the horse will finish in a 'placed' position. It doesn't matter if it wins or comes second or say, third (see below for what a 'placed' position is), you get the same payout for that part of your bet.
The number of finishers that are classed as 'placed' depends on 2 things:
If there are 4 or less runners, you can't bet each way. You have to pick the winner.
If there are 5, 6 or 7 runners, 1st and 2nd are classed as 'placed'. It pays 1/4 of the SP. A horse which starts as 20/1 will pay out at 5/1 for the 'place' part of your bet. If it wins, you will get £21 for the win plus £6 for the place.
If there are more than 7 runners, you get a fifth of the odds if your horse finishes in the first 3, but at this stage, the 'handicapped race' factor comes into play.
If it's a handicapped race of 12 to 15 runners, you get 1/4 of the SP odds if you pick a horse that finishes in the first 3.
If there are 16 runners or more, in a handicap race, you get 1/4 of the SP for a finish in the first 4.