uk tax laws on forex

This is a discussion on uk tax laws on forex within the Forex forums, part of the Markets category; Hmmm So if it's your sole source of income. You will pay tax. Do you pay CGT or income tax+NI. ...

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Old Jan 5, 2013, 4:25pm   #65
Joined Oct 2008
Re: uk tax laws on forex

Hmmm

So if it's your sole source of income. You will pay tax. Do you pay CGT or income tax+NI. And if it's the income tax route you can offset your working from home expenses.

Thus if your making 50+ trades a week. Your betting of going DMA and dropping spread betting as DMA will be cheaper.
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Old Jan 5, 2013, 6:24pm   #66
Joined Jul 2010
Re: uk tax laws on forex

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Originally Posted by malaguti View Post
Trading income, quite simply, if spreadbetting and is not your sole source of income is tax free. you dont need to even think about NI. You will already be paying NI on your job, you dont pay it again. Any other gains, if not spreadbetting will be subject to CGT and you have an annual allowance of 18k. Dead simple. Earn over 18k, you start paying tax on the excess.
If you think that this matter is dead simple then you clearly have not studied the relevant legislation, case law and HMRC guidance and in this area.

As a starting point you might want to look on HMRC's website, and whilst you are there take a look at the CGT section and you will find that the annual exemption is 10,600 per year not 18k.

Like most areas of tax it is not dead simple. It seems to me that some people have formed their opinions based upon a collection of second hand advice, urban myths and various other unreliable sources.

I have outlined in previous posts what the various situations could be and the ultimate decision as to what tax you will pay will provisionally be made by HMRC.

If, according to them, you get it wrong then there will be resultant penalties and fines and it will be up to you to take it to the First Tier Tribunal to challenge their decision if you have the grounds, time and funds to do so.

With regards to tax mitigation, there are numerous different schemes and methods that can be utilised to minimise your tax liabilities. Generally speaking because of the fees involved it's not worth doing unless you are facing higher rate tax liabilities. Many of the providers will have minimum amounts that are generally around 100k although some will be as low as 50k.

Good old fashioned low risk tax planning with a good tax adviser / IFA can keep you within the basic rate band, and if it can't because you earn too much then it might be worth looking at alternative schemes.

Generally speaking the only people who pay more than a small amount of tax at higher rates are those who haven't planned for it or those who want to pay it.
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Old Jan 5, 2013, 8:22pm   #67
 
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Re: uk tax laws on forex

Quote:
compound3;2047512]If you think that this matter is dead simple then you clearly have not studied the relevant legislation, case law and HMRC guidance and in this area.
I have actually, and being an ex accountant I'm pretty comfortable around that area. Unfortunately, HMRC does not actually have that much guidance.

Quote:
As a starting point you might want to look on HMRC's website, and whilst you are there take a look at the CGT section and you will find that the annual exemption is 10,600 per year not 18k
Indeed, you're quite right, I cant think why I mentioned 18...thats the rate. So thanks for correcting me.

Quote:
I have outlined in previous posts what the various situations could be and the ultimate decision as to what tax you will pay will provisionally be made by HMRC.
The trouble is you mentioned NI. And straight away that rang alarm bells being an ex accountant, and a business owner..the words every corporation (I think they your words) needs to pay NI. So I know categorically thats bollox, I didnt read much further but your advice on seeking advice is a good one

Will we clear it up here, highly unlikely as too many factors come into play, and this topic keeps on coming up time and time again. For me, its simple. As soon as you bring corporations, be that limited liabilty or sole traders or partnerships you start to muddy the water..as well as your age, marital status etc which all have a bearing.
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Old Jan 5, 2013, 9:30pm   #68
Joined Oct 2006
Re: uk tax laws on forex

I think you're over thinking this. You don't pay tax on money you lose.
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Old Jan 5, 2013, 9:54pm   #69
Joined Jun 2012
Re: uk tax laws on forex

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Originally Posted by malaguti View Post
I have actually, and being an ex accountant I'm pretty comfortable around that area. Unfortunately, HMRC does not actually have that much guidance.


Indeed, you're quite right, I cant think why I mentioned 18...thats the rate. So thanks for correcting me.


The trouble is you mentioned NI. And straight away that rang alarm bells being an ex accountant, and a business owner..the words every corporation (I think they your words) needs to pay NI. So I know categorically thats bollox, I didnt read much further but your advice on seeking advice is a good one

Will we clear it up here, highly unlikely as too many factors come into play, and this topic keeps on coming up time and time again. For me, its simple. As soon as you bring corporations, be that limited liabilty or sole traders or partnerships you start to muddy the water..as well as your age, marital status etc which all have a bearing.
To be fair, I think you were a bit aggressive Malaguti - I didn't see Compound saying anything about NI due by corporations?? As I'm sure you know, employer's NI (on the company) can fall due if you were to pay yourself a salary over the lower limit, but that would be an odd thing to do if you did opt for a company (though it's extremely common to pay yourself a small salary to increase company expenses and thus reduce corporation tax, but not incur personal tax or NI).

I thought they were decent posts that went into more detail than my own - it's very difficult to get comprehensive tax advice for free and he addressed this admirably.
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Old Jan 5, 2013, 9:55pm   #70
Joined Jul 2010
Re: uk tax laws on forex

Quote:
Originally Posted by malaguti View Post
I have actually, and being an ex accountant I'm pretty comfortable around that area. Unfortunately, HMRC does not actually have that much guidance.


Indeed, you're quite right, I cant think why I mentioned 18...thats the rate. So thanks for correcting me.


The trouble is you mentioned NI. And straight away that rang alarm bells being an ex accountant, and a business owner..the words every corporation (I think they your words) needs to pay NI. So I know categorically thats bollox, I didnt read much further but your advice on seeking advice is a good one.

Will we clear it up here, highly unlikely as too many factors come into play, and this topic keeps on coming up time and time again. For me, its simple. As soon as you bring corporations, be that limited liabilty or sole traders or partnerships you start to muddy the water..as well as your age, marital status etc which all have a bearing.
You are absolutely correct about there being little direct guidance from HMRC concerning forex trading which is why this matter is not dead simple.

CFDs are an asset in the same way as shares, silver bullion, land, toilet rolls and paper mills are. If you know your case law then you will know that the buying and selling of all of the above assets have led to court decisions in favour of HMRC who viewed the transactions as a trading activity and not capital gains.

The facts of the case are paramount in deciding what tax treatment will be adopted by HMRC / the courts and whilst one person may be liable to CGT on their forex trades, another person might be considered to be carrying on a trade and be subject to Income Tax and National Insurance.

With regards to spreadbetting, the legal position is that it is only taxable if it is carried on as part of a trade such as a bookie mitigating risk on their positions or companies hedging against currency/commodity fluctuations. The principle in Graham v Green that a person having a system does not make the process of betting a trade has yet to be overturned either by the courts or through primary legislation.

In reality, HMRC don't like people who don't pay tax so individual inspectors / offices will send out assessments to people together with threats of penalties/interest etc. To my knowledge all of these have been settled out of court as fighting HMRC through the courts is an expensive and time consuming hobby.

What we need is another Geoff Jones who is prepared to fight it all the way and win to give everyone certainty on the matter. It would be interesting to see such a case go to court though, because it will be a case that HMRC will lose no matter what the judgement is. If they lose then they lose, but if they win then it could open up the floodgates for claims of sideways relief from the thousands of people who have lost money spreadbetting and have other income to set the losses off against.
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Old Jan 5, 2013, 10:04pm   #71
Joined Jun 2012
Re: uk tax laws on forex

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Originally Posted by compound3 View Post
You are absolutely correct about there being little direct guidance from HMRC concerning forex trading which is why this matter is not dead simple.

CFDs are an asset in the same way as shares, silver bullion, land, toilet rolls and paper mills are. If you know your case law then you will know that the buying and selling of all of the above assets have led to court decisions in favour of HMRC who viewed the transactions as a trading activity and not capital gains.

The facts of the case are paramount in deciding what tax treatment will be adopted by HMRC / the courts and whilst one person may be liable to CGT on their forex trades, another person might be considered to be carrying on a trade and be subject to Income Tax and National Insurance.

With regards to spreadbetting, the legal position is that it is only taxable if it is carried on as part of a trade such as a bookie mitigating risk on their positions or companies hedging against currency/commodity fluctuations. The principle in Graham v Green that a person having a system does not make the process of betting a trade has yet to be overturned in the courts.

In reality, HMRC don't like people who don't pay tax so individual inspectors / offices will send out assessments to people together with threats of penalties/interest etc. To my knowledge all of these have been settled out of court as fighting HMRC through the courts is an expensive and time consuming hobby.

What we need is another Geoff Jones who is prepared to fight it all the way and win to give everyone certainty on the matter. It would be interesting to see such a case go to court though, because it will be a case that HMRC will lose no matter what the judgement is. If they lose then they lose, but if they win then it could open up the floodgates for claims of sideways relief from the thousands of people who have lost money spreadbetting and have other income to set the losses off against.
Agreed - when I stopped paying PAYE they came after me within a year and I settled with HMRC amicably re my spreadbetting gains - unlike the IRS they are not a quasi executive power and quite reasonable (the IRS will put a lien on your house and bank account if you mess them about, I guess it comes with trying to pay for a spendy spendy country with woefully insufficient tax rates....).

Actually a little too reasonable... see Vodafone.

And as you say, the loss to the exchequer of allowing spread betting losses would be much more than the gain with actively taxing the profits... I don't see HMRC ever pursuing this publicly.
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Old Jan 5, 2013, 10:24pm   #72
Joined Jul 2010
Re: uk tax laws on forex

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Originally Posted by random12345 View Post
Agreed - when I stopped paying PAYE they came after me within a year and I settled with HMRC amicably re my spreadbetting gains - unlike the IRS they are not a quasi executive power and quite reasonable (the IRS will put a lien on your house and bank account if you mess them about, I guess it comes with trying to pay for a spendy spendy country with woefully insufficient tax rates....).

Actually a little too reasonable... see Vodafone.

And as you say, the loss to the exchequer of allowing spread betting losses would be much more than the gain with actively taxing the profits... I don't see HMRC ever pursuing this publicly.
I've not had any experience with the IRS so can't make any direct comparisons, but HMRC have been getting more and more hard nosed in recent years and will often try to operate beyond their powers or what the law is just to get more revenue in.

As you have experienced, if you stop paying tax then they are likely to investigate as to what your source of income is and to try and make you pay some form of tax, but that doesn't alter the legal position.

Depending upon the money involved, it is often cheaper to settle and pay some tax rather than fight it through the courts as you can often spend more money on legal bills than the tax that is due.

HMRC play on this fact which is why they will make assessments that have spurious legal grounds as they know the majority of people will pay it. It's bully boy tactics pure and simple and makes a mockery of the legal system.

I look forward to them getting their fingers burned one day if someone did decide that the principle was more important than the money involved and took it to court. For all we know though, this may have already happened and HMRC may have withdrawn the claim before it went to court.
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