day trading and capital gains/losses

lm50

Newbie
Am familiar with long term trading in shares and how to report capital gains/losses to Inland Revenue.
Have recently started day trading CFDs. I had some gains and some losses and this has got me thinking. Sometimes do 10 trades a day and if I continue at this rate for a year, it would be extremely tedious to report each individual trade which could amount to hundreds of trades to the Inland Revenue for Capital Gains purposes.

How do others cope. Haven't been able to find any information on this.
 

Splurge

Member
Does your broker not supply end of day/month statements?

The IR are not interested in detail although they can ask for it. Profit and Loss at the end of the month should provide the answers and this should be available/supplied each month by your broker plus commissions etc
 

sidinuk

Established member
If you deal that often (up to 10 times a day) the revenue will almost certainly take the view that you are trading and therefore subject to Income tax on your profits rather than captial gains tax. Basically you then just need to enter 3 lines on your tax return, trading profits, expenses and net profit. You will be able to claim resonable expenses in running your trading business (computers, internet costs etc. as well as a cost for using part of your home as an office). The downside is that you will lose the annual CGT exemption.

You need to speak to an accountant who has experience of dealing with traders. There are considerable tax advantages to trading through a Ltd company even if you are not making that much profit. The first 10k of net profit is now taxed at 0%.
 

sidinuk

Established member
You are right it is very complicated with a lot of different options available all depending on an individuals personal circumstances, which is why I recommend speaking to a tax accountant with experience of trading. It may be in the traders interest to set up as a trader, rather than just reporting CG's.
 

Splurge

Member
I have sought professional advice on this matter...

Basically, if you trade cfds for a living - i.e. your income is derived from your trading you would be best advised to operate as a limited company owing to the tax advantages available to do so. Its a pain getting it there but it is better in the long run. This is especially true if you also s/b as the tax man will not differentiate between trading using cfds or sb if the account is in the same name or potentially direct family member and will tax you on your s/b earnings as well. It is therefore advisable to trade s/b under your own name.

If you trade and have other income then it becomes very grey as each case will be treated on its own merits (how much you earn paye compared to how much you earn trading).

hope this helps
 

X-Ray Specs

Junior member
The LTD company status I have heard will be changing soon.
The rumours that the beloved Chancellor is seriously thinking about making dividends subject to NI contributions.

This will negate somewhat the benefit of trading through a limited company.
 
Let's hope he remembers to incorporate some threshold before NI on divvies is due, otherwise every Tom, Dick & Harry who receives a 50p divi from their shareholdings will be liable to pay NI.
 

Dr Mike

Member
And I hope you've managed to fill in the 48 questions on the new Children's Tax Credit thingie correctly.

The way things are going I may find it more profitable to reduce my trading and increase my part-time accounting/tax practice.

Unlikely to have the same effect on the adrenalin though.
 

Trader333

Moderator
Tax on Trading

The simplest, and cheapest, way to determine the tax situation with regard to any form of trading is to phone the tax office and ask. They are very good at telling you the situation and you dont have to give specific details either.
 

sidinuk

Established member
That's right the tax office will tell you the tax situation in any given situation, but they won't necessarily tell you the most tax efficient way to organise your affairs. That's what you need a friendly tax accountant for!
 
... and if the information you submit is incorrect based on a telephone call, they will deny that their staff told you otherwise! And don't think you can get it in writing either.

By all means ask the tax office, but do make sure you ask more than one just to make sure. :D
 

lm50

Newbie
Thanks guys for the above information. Seems I need to think hard about getting myself an accountant. I dont have any other income and need to be certain that I can make enough to pay for the accountant and also need to think about being a trader/Ltd Co. etc. (guess I am more clueless than I thought!). Are there any books that would help me decide the route I should take?
Anyway thanks again - most useful.
 

Splurge

Member
X-Ray Specs

Yes the days of drawing no salary and then paying yourself a massive divi at the end of the year are nearly all but over. Trust these IT specialists to milk it so much it catches the attention of our friendly taxman.

However if the chancellor in his wisdom makes it more beneficial for people to trade as individuals rather than as a company then people could use the company status in a capacity to cover operating costs only. I dont think this will happen somehow. I would expect that as long as you are drawing a sensible salary from it (and then taking a nice divi at the end of the year) there would not be an issue. But who can second guess what the ol' plonker will do next!!

There are some obvious and not so obvious advantages to operating within the confines of company status and I for one would be very surprised if it becomes more profitable for people to run their business as sole traders than as limited companies no matter what profession you are in. I understood that the reason for making the first 10k tax free was one incentive to encourage companies to become limited in the first place.

It remains logical to me therefore that although the belt may be tightened on the divi situation, a complete strangulation of it is doubtful and incentives to trade as a 'Derek Trotter' are unlikely.

Don't get me wrong, it is each to his own.

I am not a tax expert, and will always expect the rules to change.
 

Splurge

Member
btw Trader 333

The last time I spoke to the tax office I think his name was Homer Simpson as most answers were 'doh'.
 

spoon102

Member
There is no tax adavantage to forming a limited company to trade. If the company is classified as an investment company, as it would be if you used it for trading then you would loose the small companies rate of Corporation Tax. i.e. any profits would be subject to tax at 30% (as opposed to rates of 10%, 22% and 40% for individuals).

The question of trading has nothing to do with other income. The Revenue will look at each case individually. They look at things like frequency of trades, profit motive etc. IMO if you are trading every day to derive your income you should be subject to Income Tax and not Capital Gains Tax. (i.e no £7,500 CGT exemption).
 

Splurge

Member
Nice you have an opinion on it spoon but I think it best if I agree to disagree. You have your sources of information on the best arrangement for trading as do I.

dsmodi /Im50- if you are looking for an accountant who has specialised knowledge in this area and has obtained legal precedence please private me on it. I am not advertising their services on this web site as I will be accused of all sorts.

Otherwise, wait for april and see what transpires in the next money-go-round shake up...................tax on s/b maybe - eeeeeek.
 

JonnyT

Senior member
I can also confirm that there is no tax advantage for an individual trading as a limited company than in his/her own name.

In fact you are likely to be worse off.

You will pay corpation tax on any profits, income tax / NI on any money you withdrawl for day to day living etc.

JonnyT
 

Splurge

Member
It is interesting the differing views around this subject and obviously, depending on how you trade will determine the best way. I personally find that operating as a limited company is more beneficial to me for the following reasons.
1. I can trade cfds under a company name and sb under my own name and not be subject to tax issues on my sb activities (at the moment, subject to what happens in april)
2. I can offset all my costs, expenses, rent, telephone, car expenses, feeds, Bskyb etc etc etc
3. The company will not be classed as an investment company owing to how I trade and should be subject to small companies rate of corporation tax.
4. At the moment dividends are still an excellent form of profit payment (even tho I expect this to change soon).

I still receive significant income from sb, and it is important for me to be squeeky clean when it comes to making sure they are classed as separate from my cfd/futures activities so operating through a company status is important for me.

I will say again it is all dependent on an individuals circumstances.

If anyone operates in a different manner it would be interesting to know how so we can all learn from their experiences. There are a lot of what u cannot do or is not a good idea posts here. Lets all benefit from other peoples approach or are most people operating outside the parameters of the UK tax system?

Do people find operating as a sole trader beneficial and why?

Do people trade and just make use of their capital gains only?

Do people take the money and run :)
 

JonnyT

Senior member
Hi Splurge,

I would be interested to know how you are avoiding being classed as an investment company?

I would also be interested how your spreadbet profits do not count as income?

Any reply gratefully accepted.

PS I do not work for the Goverment!

Thanks

JonnyT
 
 
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