uk tax laws on forex

[mindset]

The difference between a private trader and a unit trust is that unit trusts are exempt from CGT but pay a flat rate of income tax at 20%. The other big restriction is that Unit Trusts cannot borrow money so could never open a leveraged position and thus trading forex is a non starter for them.

The same rules apply to both though as regards to whether a disposal is an investment and subject to CGT or whether it is a trade and subject to income tax. If you have short holding positions (days or hours) and are a high frequency trader (a few every week) then your disposals will likely be part of a trade and subject to income tax not CGT. There are several other conditions that HMRC look at in deciding whether a disposal is subject to CGT or is conducted as part of a trade, but I can assure you apart from not employing sales staff or advertising the goods for sale, the rest of them pretty much nail Forex trading as being classed as a self employed trade.

As self employed trading income you will also be liable to Class 2 and Class 4 NIC which are £2.50 per week and 9% of profits between £7,225 and £42,475 and 2% of all profits above £42,475, in addition to income tax at the normal rates. You will not have to declare all of your trades on your tax return but you will have to declare the total P/L for your accounting period. The other nasty surprise will be that you will effectively pay 150% of the tax due the first time you declare profits as 100% will be the tax due and 50% will a a payment on account (due on the 31st January in the year after the tax year in which you made your profits has ended) with a further 50% payment on account due on 31st July of the same year.

I have had many dealings with HMRC and I would never trust what one person has told me on the phone. I have asked the same question 3 times to 3 different people on the same day and got 3 different answers. You will not be provided with a reference number or the name of the person you spoke to HMRC and their opinion is not legally binding. Your only hope would be to get it in writing from them but good luck with that!

If you really want to find out from the HMRC, then submit a tax return classing all of the profits as being subject to CGT, but to do so you will have to submit your calculations for each gain and loss which means detailing every single trade. Your continuation sheet is likely to be several pages long and all tax returns get the quick once over for obvious errors so this may or may not generate an enquiry. To open an enquiry HMRC have 12 months from the submission of your tax return to start one, although the time is unlimited if they think you have been negligent or fraudulent. Just because it wouldn't get flagged one year though, it doesn't mean it's ok so you would be waiting to see if they ever opened an enquiry. If they did they could backdate it, and if they thought you owed them unpaid tax then they can impose penalties, surcharges and interest would could bump up the underpaid tax you owe them by as much as 50%. At the moment HMRC are understaffed and are taking forever to even acknowledge post, so they might not have the resources to pick up on it, however, they are being extremely ruthless with any unpaid taxes so if they did pick it up then watch out.

This all refers to trading Forex through CFDs with a Forex broker, so if possible I would try to use a spread betting account because as long as it is not your only income 'casual gambling profits' are exempt from both CGT and income tax. As a rule of thumb you would need another source of taxable income that could cover at least your basic outgoings such as rent/mortgage, bills, food etc even if the taxable income was considerably less than your trading income. A good way to achieve this is to pay your mortgage and debts off asap from trading profits and thus reduce the amount of money you need from a taxable source.

what about setting up an offshore comapny?

 

[compound3]

what about setting up an offshore comapny?

A complicated possibility. You would be restricted on your choice of broker and the terms they would offer you, such as costs and max leverage because of the limited liability aspect as the broker would be taking a greater risk than a retail account.

You would also incur quite a few professional fees and to be free of UK Corporation Tax, the company would have to have it's significant management functions based outside of the UK, so you would need to have non UK directors, have board meetings overseas etc.

You would also carefully need to consider how to set up the company and think about how you would get the money out.

Even if the company wasn't subject to UK tax, any dividends you received from it would be at a rate of 10% to basic rate payers and 32.5% to higher rate payers. The only real advantage would be if you planned to become non-resident at some point and paid yourself the money when you left the UK, or if you knew you were going to be a lower rate tax payer at some point in the future.

That's a brief overview, but basically it would involve extra cost, complexity and risk and the savings would depend on your current and future tax and residence status.

One other option you could have would be to trade forex from within a SIPP, and then not only would all of your profits be tax free, but you would get tax relief on all the contributions you made to the SIPP. 25% of the SIPP could be withdrawn tax free when you retired (any time from 55 now) and the rest would have to be used to provide a taxable income. The SIPP option would again only be suitable according to your circumstances such as funds available, years to retirement, tax status etc and shouldn't be undertaken without seeking professional advice and considering all of the implications.

On a brighter note, Alpari have now started to offer spread betting on MT4 which as I mentioned previously, would be tax free for most people trading forex for an additional income. They are offering 1:500 leverage with a min trade size of 10p with no maximum so it doesn't suffer from the the limitations of the SLM account. As an automated trader I was jumping for joy on the weekend when I found out as it has certainly made my tax planning a lot easier!:clap:

 

[flbroker]

This is probably the most useful discussion on the taxation subject I've seen online so thank you all for your contributions. I found this on spread betting:

Q: So is Spread Betting really tax-free?

A: The simple answer is yes. Spread betters escape the 18 per cent capital gains tax that shareholders must pay on trading profits (capital gains amounts to the difference between what you pay for an investment and what you eventually sell it for). There is also no stamp duty and no commission on each trade apart from the spread. Not having to pay capital gains tax is a great advantage as it means that you can factor an additional 18% return on your trading profits since you will be saving monies that would have otherwise gone to the tax man. Moreover, with spread betting there is no income tax on dividends; which is levied at rates as high as 50% for high income earners.

However it is important to point out that spread betting may only be tax free if it is not your main source of income. For that reason it is probably not wise when opening a spread betting account to put your job description down as 'day trader' or 'trader' as it would then be rather difficult to claim at a later date that trading was not your main income if the Inland Revenue was to query where you made your money!!!

I actually spent ruddy ages trying to establish the position of spread betting with the revenue, and in the end it was pretty clear - perhaps this will ring true with those who have investigated this with the revenue themselves? If you have a 'subsistence income' (i.e. enough to live off) from an independent source that you pay tax on, then HMRC can't tax you on your spreadbetting activities. It's only if you have no other source of income and you use it for your primary income source that the tax advantages may disappear. Spoke to the revenue office in Nottingham with a technician there, who specialize in people who make a living from gambling, so I guess he knows his stuff. He deals with people playing the horses, dogs, poker, even casino games (!).

​

The bottom line is that if you are a tax payer who wins at spread betting (or any other forms of gambling for that matter!) you should not be liable for tax on winnings. If you do not have any other regular taxable income other than gambling you will probably be classified as a professional gambler (your trade) and may loose your BIM22017 exemption. In any case if you are employed and pay PAYE you cannot be classed as a professional gambler and so do not need to pay tax on gambling winnings even if they exceed your employed income. The reason HMRC are reluctant ot classify anyone as professional is that a professional gambler could then claim relief against losses from gambling and against the spreadbet companies proportion of their gambling tax.

The vast majority who spreadbet, I would opine, do not do it for a living, and therefore they are completely safe from taxation. Those who do it for a living have enough cash to hire clever accountants who sort it all out for them. Nothing to stop a millionaire trader having a self-employed 'subsistence income' from a bit of consultancy work that he pays tax on. The revenue can challenge it, but due to the nature of current legislation, they're unlikely to win. Thing I discovered after starting work in the Financial Services industry is that tax law is much more open to interpretation than I ever imagined beforehand!

That said, I have never heard of anyone being taxed on spread betting but then people probably don't advertise the fact.


More Q&A:
Q: But then how is one taxed if one invests in spread bets/CFDs?
Q: Why does the UK do this - isn't the country losing revenue due to no taxes being levied on spread betting gains?
Q: How much is stamp duty and when is it paid?
Q: You mention that spread betting on the financial markets is not subject to capital gains tax in the UK. But what is the situation in Ireland?
Q: What is the reason for Stamp Duty? Can I claim it back?
Q: I'm looking to trade US equities, thinking of getting an account in the US (thinkorswim), what are the tax reporting requirements on this stuff?
Q. What if I decide to do the spread betting full-time and quit my job?
Q: I know that spreadbetting is free of capital gains tax in the UK, but I have heard people say that if it is your main source of income then you might have to pay tax...
Q: If I let a friend do my spread betting am I liable to pay CGT or Income Tax on profits?
Q: Does the tax exemption still apply for spread betting done via a company?
Q. Can a club spread bet tax free or do we have to use CFDs?
Q: Can income tax be claimed on losses in spreadbetting?
Q: Is Spread Betting a qualifying investment for a Sipp?

So is Spread Betting really tax-free?

So in a nutshell. If you spread bet and have another source of income, no matter how much you earn, you don't pay any taxes. If your only source of income is spread betting, you will have to pay taxes.

I'm a Forex trader and I'm not familiar with spread betting so I can't help you, but that's basically it regarding taxation.

 

[fractionater]

This is a great/really useful discussion!

So in theory, if FX trading is your sole source of income (no other job), could you:

1) Set up as self employed and trade FX via CFD's
-declare any profits from this as your sole source of income for IR purposes
-off set any of your expenses
-pay any income tax due to keep IR happy

2) ALSO setup a Spread bet account and not declare any profits from this...as (1) would be classed as your sole source of income.

So assuming you are successful with (1), you could structure your profit and minimise your tax liability to a certain point and then continue to make tax free profits for the rest of the year via (2).

Any thoughts on this?

 

[compound3]

This is a great/really useful discussion!

So in theory, if FX trading is your sole source of income (no other job), could you:

1) Set up as self employed and trade FX via CFD's
-declare any profits from this as your sole source of income for IR purposes
-off set any of your expenses
-pay any income tax due to keep IR happy

2) ALSO setup a Spread bet account and not declare any profits from this...as (1) would be classed as your sole source of income.

So assuming you are successful with (1), you could structure your profit and minimise your tax liability to a certain point and then continue to make tax free profits for the rest of the year via (2).

Any thoughts on this?

You would have to look carefully at what your expenses were for and how they were incurred. You can only offset expenses incurred wholly and exclusively for business use.

So for example, if you bought a new PC for trading and it cost £1,000 and you only ever used it for trading CFDs then it would be wholly deductible. If, on the other hand you used it 50% of the time for CFDs and 50% for spreadbetting then you could only claim £500 as a business expense.

If anyone is starting out then there are distinct advantages to working as a self employed trader, in that any trading losses (including expenses) can be offset against other income such as your salary.

This means you have a degree of capital protection because if you lose money then you may qualify for a tax rebate.

It's not a popular viewpoint as most people think they are going to make millions trading and are more concerned about not paying 50% on imaginary profits than they are against offsetting real losses against earned income.

Over 90% of traders lose money so your choice of set up should take this into account.

The question is whether you want to enter into a situation where the odds are considerably against you and have some form of protection against losses, or whether you would prefer to have no form of protection against your losses in order for you to maximise profits that statistically you are unlikely to achieve.

The worst case scenario in being a trader is that you end up paying tax on money you've actually made net of expenses.

The truth is that HMRC love spreadbetting as people lose lots of money which they can't offset against any other gains or income, and the money they have lost filters through into taxable profits for the spreadbetting companies.

If everyone started to trade as a business then it would put a serious dent in HMRC receivables.

 

[fractionater]

You would have to look carefully at what your expenses were for and how they were incurred. You can only offset expenses incurred wholly and exclusively for business use.

So for example, if you bought a new PC for trading and it cost £1,000 and you only ever used it for trading CFDs then it would be wholly deductible. If, on the other hand you used it 50% of the time for CFDs and 50% for spreadbetting then you could only claim £500 as a business expense.

If anyone is starting out then there are distinct advantages to working as a self employed trader, in that any trading losses (including expenses) can be offset against other income such as your salary.

This means you have a degree of capital protection because if you lose money then you may qualify for a tax rebate.

It's not a popular viewpoint as most people think they are going to make millions trading and are more concerned about not paying 50% on imaginary profits than they are against offsetting real losses against earned income.

Over 90% of traders lose money so your choice of set up should take this into account.

The question is whether you want to enter into a situation where the odds are considerably against you and have some form of protection against losses, or whether you would prefer to have no form of protection against your losses in order for you to maximise profits that statistically you are unlikely to achieve.

The worst case scenario in being a trader is that you end up paying tax on money you've actually made net of expenses.

The truth is that HMRC love spreadbetting as people lose lots of money which they can't offset against any other gains or income, and the money they have lost filters through into taxable profits for the spreadbetting companies.

If everyone started to trade as a business then it would put a serious dent in HMRC receivables.

Thanks for the response Compound3.

I get the idea of offsetting expenses (or partially) when self employed, but what i was interested in is the structure I proposed above, whereby you start the year off as a legitimate self-employed trader using CFDs. and declare that as your main source of income. If you are then simultaneously spread betting will that then be classed as tax free (even if your PL from Spreadbets > PL from selfemployed CFDs)?

So hypothetically, if you earn £30k from CFDs in the first 6 months of tax year you'd declare that as income on your Self assessment and be liable for the 20% income tax band + NI.
Then in the final 6months of tax year you switch trading to your spreadbet account and earn £40k - which is tax-free (cgt or income)...then rinse and repeat next year!

Does that sound ok or am I missing something glaringly obvious?

 

[NVP]

interesting thread.........

lets hope that the betting tax is not raised in the future.........

N

 

[compound3]

Thanks for the response Compound3.

I get the idea of offsetting expenses (or partially) when self employed, but what i was interested in is the structure I proposed above, whereby you start the year off as a legitimate self-employed trader using CFDs. and declare that as your main source of income. If you are then simultaneously spread betting will that then be classed as tax free (even if your PL from Spreadbets > PL from selfemployed CFDs)?

So hypothetically, if you earn £30k from CFDs in the first 6 months of tax year you'd declare that as income on your Self assessment and be liable for the 20% income tax band + NI.
Then in the final 6months of tax year you switch trading to your spreadbet account and earn £40k - which is tax-free (cgt or income)...then rinse and repeat next year!

Does that sound ok or am I missing something glaringly obvious?

There isn't a black and white answer to that. What you are asking is under what circumstances spread betting could be subject to tax

Talk of taxing spread betting comes from decisions made by local inspectors as to what they think constitutes gambling and what constitutes operating a trade. The interpretations that some people have said they have got from HMRC is that you must have some other form of income to cover your living costs, but that is not contained in any legislation or case law that I am familiar with.

The main case involving the taxing of betting involved a professional gambler who's sole source of income was from betting on horses and the tax man lost that case.

The only existing case law that allows for HMRC to tax betting profits is if they could show that it was part of another taxable trade. So for instance if you were a professional poker player and got paid to appear on TV/Internet/at tournaments etc then they might be able to tax your winnings, but if the only income you derived was from your winnings then they would find it very difficult to tax them.

HMRC will, however, try to twist the rules however they see fit if it means that they can reclaim extra tax. In the situation you have just described, it would be up to the relevant inspector to decide whether or not he thought they could tax the spreadbetting.

You might get a decision saying that he thought that the whole £70k would be taxable as the same activities generated profits chargeable to tax. If you did get such a decision then it would be up to you whether to challenge it or not. HMRC regularly issue demands for tax to which they are not entitled to, but the vast majority of people just capitulate and pay it.

The tax laws of this country are decided by legislation and case law, not HMRC. It is impossible to know what stance an individual inspector might take, especially if he was behind on his targets. This means that you might get a different answer to the same question from different inspectors. It also means that you can challenge any of those decisions if you have the time and money.

Existing case law and legislation points to spread betting being tax free, but if certain departments and inspectors are trying to find ways to tax it, then sooner or later there will be a test case. If HMRC win then you might have a better idea of how they can tax it, and if they lose you will be ok until they run cap in hand to Parliament asking them to pass legislation to tax it (which is normally what happens when they lose a big case)

On more practical issues, if you cease to pay tax all together then you will get flagged up on HMRC's system and they will want to know how you are surviving without a taxable income. This could lead to an investigation which is the only way an Inspector would review your spread betting activities, unless you informed HMRC of them. I do not think there is any need to do the latter however, as there is no official guidance from them stating that they think spread betting is taxable, nor does any current case law or legislation.

If, on the other hand, you pay your taxes on a reasonable amount of money, complete your tax returns correctly and submit them together with your taxes on time, then you are far less likely to be investigated.

The other practical aspect to think of would be the distribution of profits. If you made £70k over the course of a 12 month period, how would you know which months were going to be profitable and which ones were going to be loss making?

It could be possible that you make £100k in the first 6 months and a loss of £30k in the last 6 months. If that was the case then you would pay tax on the £100k and receive no relief for the £30k loss.

If you decided to go down the route of part CFD/part spread betting then if you placed simultaneous trades on both platforms then at least you would be averaging out your profits and losses.

My apologies for such a convoluted answer but as with many areas of tax, there is no such thing as a black and white answer.

 

[S A KHAN]

There is very little information on Spreading Profits tax. All Spreadbetting brokers state that spreadbetting profits are tax free (only info). I have spent a lot of time digging out exact IR attitude.
This is as far as I have been able to find.
1. If you have a part time occupation, that pays your living expenses, then profits made from
spreadbetting are tax free, irrespective of any amount, even a million.
2. No definite answer on reporting these profits in tax returns, even from spreadbetting.
3. Is a Pensioner classed in the eyes of IR as receiving living expenses (state pension), which also
means that he does not have to rely on profits for a living. In that case his activity of trading
spreadbets is a spare time activity even if he is engaged in it 24 hours a day and thus tax free.
4. I have not been able to clarify answer to points 2 &3 above.

If any reader has a definite experiance in this regard, I will very much appreciate your comments.
Needless to say that Inland Revenue are always looking for a kill as per their interpretation of the regulations, irrespective of what your interpretation is.
regards
SAK

 

[WallStreetHero]

So if your making your sole income from trading CFD's or SB your liable to pay tax and if your making over £50k a year and doing CFDs its a whopping 28% CGT + 50% income tax. Which takes out your whole profit.

Does anyone know where you will find a good account for trading in London?

 

[fractionater]

So if your making your sole income from trading CFD's or SB your liable to pay tax and if your making over £50k a year and doing CFDs its a whopping 28% CGT + 50% income tax. Which takes out your whole profit.

Does anyone know where you will find a good account for trading in London?

No - Its Income tax only if the CFDS are your ONLY source of income.
20% up to £34k
40% from £34k - £150k
50% from £150k
+ National Insurance contributions

But if you have a day job paying £50kpa, then that will be liable for income tax only (20 + 40% bands), and any cfds will be CGT only (over approx £10k tax free allowance)

 

[WallStreetHero]

Do you understand the mean of 'sole income'.

and why would you have a day job anyway if your making over 50k from trading.

 

[compound3]

No - Its Income tax only if the CFDS are your ONLY source of income.
20% up to £34k
40% from £34k - £150k
50% from £150k
+ National Insurance contributions

But if you have a day job paying £50kpa, then that will be liable for income tax only (20 + 40% bands), and any cfds will be CGT only (over approx £10k tax free allowance)

Not true. The badges of trade apply whether you've got another job or not.

If you are running a business, even if it is part time, then you are liable to Income Tax and NIC not CGT.

If you were employed and earning £50k a year but also ran a pub, would you expect to pay CGT on the beer you sold, or income tax on the profits you generated from the trade?

There's nothing special about forex trading with CFDs. A CFD is an asset and the same rules apply as if you were buying and selling any other asset such as antiques, houses or toilet rolls. If you buy them infrequently and hold them for reasonable lengths of time, then you are likely to be subject to CGT on any gains at disposal, but if you are continually buying and selling and the manner in which you are doing it is similar to that of a trade then you will be subject to Income Tax and NIC.

 

[reza_trade]

Chapter and Verse from HMRC website

BIM22020 - Trade: exceptions & alternatives: betting and gambling: spread betting
The principles of Down v Compston [1937] 21TC60 and Burdge v Pyne [1968] 45TC320 (see BIM22019) apply equally here. To be taxable, the spread betting wins must come not merely from an opportunity presented by a trade, they must arise from the carrying on of that trade. Whether or not a particular spread bet is taxable will depend on the terms of the contract and the economic substance of what is done.

For more on this see CFM13214.
BIM22020 - Trade: Exceptions & alternatives: Betting and gambling - spread betting

Hi folks,
Can anyone comment on this part form HMRC?
Does "Whether or not a particular spread bet is taxable will depend on the terms of the contract and the economic substance of what is done" means HMRC can interpret this as trade if they want or what?

I am newbie and really want to know does it worth to deal with all these obstacles in order to make some money which you are not 100% sure or just scratch it all?

Thanks

 

[pboyles]

Hi folks,
Can anyone comment on this part form HMRC?
Does "Whether or not a particular spread bet is taxable will depend on the terms of the contract and the economic substance of what is done" means HMRC can interpret this as trade if they want or what?

I am newbie and really want to know does it worth to deal with all these obstacles in order to make some money which you are not 100% sure or just scratch it all?

Thanks

Tax is the least of your worries, you don't pay tax on money you lose. The chances of you making money in the first 3 or 4 years is about zero, therefore your tax liability will be zero. Very simple indeed.

 

[compound3]

Tax is the least of your worries, you don't pay tax on money you lose. The chances of you making money in the first 3 or 4 years is about zero, therefore your tax liability will be zero. Very simple indeed.

Like I said before, over 90% of people would be better off starting with CFDs and registering as self employed.

That way any losses would be trading losses and could be offset against any other income in current or previous tax years.

Make sure you are squeaky clean before you do so though as HMRC love opening up enquiries on people claiming sideways relief.

 

[malaguti]

Hi folks,
Can anyone comment on this part form HMRC?
Does "Whether or not a particular spread bet is taxable will depend on the terms of the contract and the economic substance of what is done" means HMRC can interpret this as trade if they want or what?

I am newbie and really want to know does it worth to deal with all these obstacles in order to make some money which you are not 100% sure or just scratch it all?

Thanks

"the terms of the contract" as far as HMRC are concerned, a spread bet is exactly the same as a CFD if the bet is entered by a company. Not so an individual for which profits are tax free if its not your sole profession. So the terms of the contract, meaning the contract for difference, in which case gains are taxed accordingly.
If you spreadbet in your own name, you will be fine as long as you have another paying income. Thats your only obstacle to contend with. That and actually making money from it of course!

 

[bootsyjam]

Here's my input-just spoke to an accountant who specialises in fx trading and tax.

Most important thing to realise is: you will get taxed. if you're spreadbetting, if you're making 1 or 2 k per year then who cares, even if it is your sole income. In fact, you'll be fine up to the threshold where income tax starts to kick in at £8,105.If you're nowhere near that figure then relax.
If you do exceed that figure, then you'll be liable for tax IF IT'S YOUR SOLE INCOME i.e. you're doing it on the side. It's simple. I'm guessing that most spreadbetters here aren't earning more than £8k per annum (apologies if you are).

To everyone else, then we have to pay tax. We don't like it, but deal with it. if trading is your sole income, then it actually is better to be taxed under CGT-here's why.

If you don't have any other CGT profits for the year, then the first 10,600 is tax free. The next band up to approx £35k is taxed at 18%. Then everything after that is charged at 28%. However, this is affected by your income tax rate, it could be that you're taxed the full 28% straight away if your tax band is high enough

So if you make 100k per year-first 10k is free, next 25k is taxed at 18% (if no other income) or 28% if you're a higher rate tax payer, and then after 35k it's 28%.
But even if you got taxed at 28% after the first 10k, that's still pretty damn good. Why? Because if you are classifying it as income, then anything over 34k is taxed at 40%. I can't be bothered to do the maths but that hurts. You'll also most likely have a ltd co set up, have accountants fees etc. of course you can write costs off against income, but damn-who would prefer a flat rate of 18-28% where you know where you stand with it, or having it tied up in ltd cos and all the record keeping?

Of course, it all boils down to one thing. Are you a speculator or an investor? I, for one, have no idea. Have read loads and am still no closer to an answer...

 

[random12345]

Here's my input-just spoke to an accountant who specialises in fx trading and tax.

Most important thing to realise is: you will get taxed. if you're spreadbetting, if you're making 1 or 2 k per year then who cares, even if it is your sole income. In fact, you'll be fine up to the threshold where income tax starts to kick in at £8,105.If you're nowhere near that figure then relax.
If you do exceed that figure, then you'll be liable for tax IF IT'S YOUR SOLE INCOME i.e. you're doing it on the side. It's simple. I'm guessing that most spreadbetters here aren't earning more than £8k per annum (apologies if you are).

To everyone else, then we have to pay tax. We don't like it, but deal with it. if trading is your sole income, then it actually is better to be taxed under CGT-here's why.

If you don't have any other CGT profits for the year, then the first 10,600 is tax free. The next band up to approx £35k is taxed at 18%. Then everything after that is charged at 28%. However, this is affected by your income tax rate, it could be that you're taxed the full 28% straight away if your tax band is high enough

So if you make 100k per year-first 10k is free, next 25k is taxed at 18% (if no other income) or 28% if you're a higher rate tax payer, and then after 35k it's 28%.
But even if you got taxed at 28% after the first 10k, that's still pretty damn good. Why? Because if you are classifying it as income, then anything over 34k is taxed at 40%. I can't be bothered to do the maths but that hurts. You'll also most likely have a ltd co set up, have accountants fees etc. of course you can write costs off against income, but damn-who would prefer a flat rate of 18-28% where you know where you stand with it, or having it tied up in ltd cos and all the record keeping?

Of course, it all boils down to one thing. Are you a speculator or an investor? I, for one, have no idea. Have read loads and am still no closer to an answer...

If you can't prove to HMRC that you're a hobbyist in your trading activities using the 'badges of trade' tests then you're liable to income tax and class 4 NI, not CGT. Pursuing a regular profit is one of these and you'd have a great deal of trouble convincing the commissioners you ever possessed an underlying security unless you actually trade shares and not a CFD derivative.

You could potentially wrap your trading activities up in a company to avoid National Insurance (you pay corporation tax on distributable profits and then only income tax on dividends), but this is only profitable insofar as your profits are below a certain level (so you pay corp tax at the lower level).

You can obviously deduct all relevant expenses either as a sole trader or a corporation and I would advise looking into 'use of home' on the web. It is my biggest deduction as I rent in London. Commissions etc go without saying.

The first year you file a tax return can be very difficult due to payments on account for the next year falling due (very roughly speaking, a sort of predictive PAYE for self employed people). The first return I filed as a trader cost me a fortune, but since you receive credit on your subsequent returns, it levels out.

I settled with HMRC separately to the return process on my spreadbetting activities - always push back on SB, it's very unclear and no final test case exists to my knowledge.

 

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If you can't prove to HMRC that you're a hobbyist in your trading activities using the 'badges of trade' tests then you're liable to income tax and class 4 NI, not CGT. Pursuing a regular profit is one of these and you'd have a great deal of trouble convincing the commissioners you ever possessed an underlying security unless you actually trade shares and not a CFD derivative.

You could potentially wrap your trading activities up in a company to avoid National Insurance (you pay corporation tax on distributable profits and then only income tax on dividends), but this is only profitable insofar as your profits are below a certain level (so you pay corp tax at the lower level).

You can obviously deduct all relevant expenses either as a sole trader or a corporation and I would advise looking into 'use of home' on the web. It is my biggest deduction as I rent in London. Commissions etc go without saying.

The first year you file a tax return can be very difficult due to payments on account for the next year falling due (very roughly speaking, a sort of predictive PAYE for self employed people). The first return I filed as a trader cost me a fortune, but since you receive credit on your subsequent returns, it levels out.

I settled with HMRC separately to the return process on my spreadbetting activities - always push back on SB, it's very unclear and no final test case exists to my knowledge.

Random is absolutely correct in his assessment of the tax situation. If you are trading in the same sense as any other trade and fulfil the badges of trade then you will be liable to income tax and Class 4 NIC and you should register for Class 2 NIC if your profits in a tax year exceed £5k.

If you don't put any money aside for tax/NIC as soon as you start making money then the first tax return will hurt as you will have to pay all of the tax/NIC due on the first return plus 50% on account for the next year, so in effect 150% will be due.

The taxes due will be for the accounting period which ends in the tax year, with the money being due on 31st January following the end of the tax year. You have some scope to play around with the accounting period as you can choose when this is in your first year and it doesn't have to be either the first 12 months of trading or the tax year. You may also find you are paying extra tax on the 2nd return depending upon when your AP ends. The rules on it are too complex for me to explain but after 3 years it will always level out and any extra tax paid will be credited in your last year of trading.

The cashflow situation is somewhat better with a ltd co as you first corporation tax bill (20% of profits) is due 21 months after you start trading and is for the first 12 months only with no payments on account. Of course if you take dividends and haven't done sufficient planning to avoid higher rate tax, then the the additional tax due on the net dividends (another 25%) is due in the same way as trading profits, ie via self assessment with payments on account each year.

If the accountant Bootsy saw specialises in trading, then I doubt very much whether the advice he was given was the same as what he posted. Trading may be subject to either CGT or Income Tax depending upon a variety of factors (ie the badges of trade). You don't get a choice in the matter.

If the accountant has told you that you will only be liable to tax if it is your sole income then that is a very dangerous oversimplification of the situation, and if they have said cart blanche that the tax you will be liable for is CGT then I would suggest you go to another accountant, or preferably a tax adviser who would know a lot more about this than an accountant.