Tax and futures trading- UK

This is a discussion on Tax and futures trading- UK within the Home Trader forums, part of the Trading Career category; Just had a long chat with an accountant who deals with futures trading. PM me if you want the details-this ...

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Old Feb 18, 2015, 3:12pm   #1
Joined Sep 2006
Tax and futures trading- UK

Just had a long chat with an accountant who deals with futures trading. PM me if you want the details-this is not advertising in any way.

Please note that if you look at my history on this site I'm not a scammer/sales person.

All info is correct (albeit second hand) as of 18/2/15. I mention the date as thanks to the way our societies work, governments can change laws which may render this info as out of date at some point in the future.
I am NOT an accountant so please do your own research according to your own personal circumstances. Plus I may have things a bit wrong in terms of taxation levels/rates (note that important "I'm not an accountant" part).

First off-hybrid LLPs which some older posts mention are no longer a good idea as the laws have changed which means they're no longer a viable structure through which you should trade futures.

The best structure for futures/trading in general is still a ltd company.
Note that if you trade just under your own name then you do not pay income tax, it is classed as capital gains. By incorporating yourself, it turns it into a professional business rather than a hobby.
I asked whether making profits of 150k per year as a sole trader would still be classed as a capital gain rather than income as it shows a professional level of trading, and that it would be main source of income. Was told that it didn't matter, would still be classed as a capital gain (cheaper tax rates so yay!).

HOWEVER. You face being personally liable if things go wrong. This is a big deal in my opinion. You essentially are a paying a premium in tax to protect yourself in a ltd co. Note that brokers may ask for more capital/other measures when setting up as a ltd co because of this ring fencing.
You also can claim back a whole raft of expenses to reduce your taxable profit in a ltd co.
And you can reduce taxable gains by paying money into a SIPP when trading using a ltd co.
Also, you can choose to keep the money in a company and roll it over every year (risky with dodgy banks across the world but still worth knowing). If you do this over a number of years and then close the ltd co then the profits are taxed at only 10% when you wind it up. Note that if you do this often then it is seen as a tax dodge e.g. 3 years of profits, close company, then start another one, 3 years of profits, close company etcetc. I was advised that winding down one company, starting another and then winding it down within 5 years would be looked at badly by HMRC and would most likely result in the profits being taxed as income.


I did ask about doing the old Luxembourg dodge (i.e. open a company there, lend money to a UK based company and send money back to parent Luxembourg company with interest to reduce taxable profits) but this is not possible as UK resident. Note that if you're not UK based then it might still be an idea (depending on set up costs).

Ltd company facts:
Corporation tax is 20% on taxable profits.
Idea is to pay yourself a small salary and distribute dividends. Apparently 30k per annum is the max amout you can pay yourself before other tax levels kick in (bit hazy on this one-sorry).
Income of up to 150k in ltd co is taxable at 25% of net dividend (yeah still a bit unclear on this!).

Hope this helps a bit, info on this is rare. My own personal opinion is that the limited liability is key, although I need to find out what extra assurances (if any) I need to give to my broker.
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Old Feb 18, 2015, 5:48pm   #2
Joined Jun 2003
Thanks, nice research. I used to run such a corporate structure. But apart from Interactive Brokers every broker asked me to sign a letter of personal ...... yes you made a perfect guess. And regarding Luxembourg and equal dodges: Often the medicine is worse than the illness!

Thanks and regards
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Old Mar 14, 2015, 10:33pm   #3
Joined Nov 2010
Hi Botty.

Thanks for highlighting this. I do my trading via a Ltd company, and can confirm that
"Income of up to 150k in ltd co is taxable at 25% of net dividend (yeah still a bit unclear on this!). "
....is not correct. If you mean that Ltd company has to pay 25% tax, then it's incorrect, because
corporation taxes are just 20% of profit up to £300K and 21% above £300K.

"HOWEVER. You face being personally liable if things go wrong."
I'm not sure what the extra liability would be trading via a Ltd company? Do you mean that if
I over-leverage and my account blows up, then I am personally liable for the losses?
I have Ltd company accounts with Sucden and personal ones too....and there is no difference
between the two. I did not have to agree to any personal liabilities. If the market moves in a way
that means I have to provide extra margin, I simply get a margin call.

"And you can reduce taxable gains by paying money into a SIPP when trading using a ltd co."
This is interesting - can you pls explain this a bit more?

Many thanks for a great post BTW, and best of luck.

P
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Old Mar 15, 2015, 1:16pm   #4
Joined Sep 2006
bootsyjam started this thread Hi Punjabi,
Thanks for clarifying things for me r.e. corporation tax/dividends.
R.e. ltd company/personal losses, a limited company refers to the fact that you have limited liability. Using the recent CHF debacle, if you had a loss of 50k due to the market gapping and only had 10k in your account and you weren't in a wrapper, then you would be pursued (and liable) for the full amount. However, if you were trading through a limited company, had the same position on with the same losses but your corporate assets totalled (for sake of argument) 25k, then that is all that you would be legally liable for. Limited liability. Considering that we are 7 years into an economic cycle, many assets are massively over valued etcetc then this is an important facet of trading ( in my opinion anyway).

As for the SIPP thing. Say you earn 500k a year. The idea is to reduce your TAXABLE profit in order to reduce the amount of tax you pay at the end of it all. So you claim back your expenses related to the business against this 500k (office rent, software/platform costs etc). And you can also take out a certain amount of this 500k to put into a SIPP. I don't know the maximum amount- I have a figure of 40k per annum in my head but really don't know where that's come from!
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Old Mar 9, 2017, 6:19pm   #5
 
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Joined Mar 2017
Any updates on this subject in the UK as it is now 2017?
Any recommendations on really good accountants that understand the subject?
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Old Mar 10, 2017, 11:53am   #6
Joined Sep 2006
bootsyjam started this thread
Quote:
Originally Posted by dragoncom View Post
Any updates on this subject in the UK as it is now 2017?
Any recommendations on really good accountants that understand the subject?
https://www.advanta-ca.com/futures-a...ns-traders.htm
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Old Mar 10, 2017, 12:32pm   #7
Joined Jul 2010
http://www.traderstaxclub.co.uk/ website dedicated to trading taxes in the uk.
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Old Mar 10, 2017, 12:35pm   #8
Joined Jul 2010
http://www.accountantsfortraders.co.uk/ not a reccomendation
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