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.
Absolute rubbish, this all depends on whether/how you are classifying the enterprise. Random has mentioned two ways, sole trader or a corporation. You cant then start spouting about class 4 or class 2 NI until you define this enterprise.
And its also pretty damn easy to convince HMRC whether its not your sole income. Show him your P60.
Thanks to all the contributors of the thread,
i have nt quite had chance to read all yet - so maybe this has already been discussed - but is there any way trading income can be taxed as in the "Jimmy Carr" and "Take That" (sorry, giving nothing) tax bands and schemes
What Jimmy Carr Can Teach You About Tax Avoidance | money.co.uk
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.
I have actually, and being an ex accountant I'm pretty comfortable around that area. Unfortunately, HMRC does not actually have that much guidance.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.
Indeed, you're quite right, I cant think why I mentioned 18...thats the rate. So thanks for correcting me.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
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 oneI 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.
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.
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 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.
My advice would be to start by using a spreadbetting account rather than an ECN. Learn the ropes and experience the different market conditions in a controlled manner. Don't run before you can walk. Aim to break-even (I know it sounds boring!) in the first couple of months. Capital Spreads or Dealing Desk are your best bet.
Worry about tax once you've made £50k spreadbetting.
Good Luck!
Steve.
Can you please give me some info on " penshioner having permanent source of income by receiving penshion for a living-----also engaged full time in spreadbetting forex" and making a gain pounds 40 a day on average.
How his gains are treated for tax purposes. I have looked extensively on sites and found no mention specifically treatment towards pensioners whose guaranteed source of income is already met by pension.
Ahem to that D70.
When I said grey area I meant that some people have had pressure applied by HMRC, rolled over and paid when it was their sole source of income. As reported on this very thread.
