End of Year Tax Reporting

[peugots]

I swing trade nasdaq shares and last year I made several hundred trades. Getting all this information to the UK inland revenue in a format they will accept is in itself very difficult. On top of this I have just found out that I will have to convert all dollar prices to british pounds, and use the exchange rate that aplied for the day I did the trade in question. So thats a different exchange rate for each day.

Apart from leaving the above task with the accountant and incurring an extra fat bill how do UK traders deal with the problems above? Is there any special software people have? Or does anyone have an excel spreadsheet which helps them, and if so may I have a look at it?



I would greatly appreciate any help as I am currently breaking out in a sweat about the above.



New Years regards,




Andrew

 

[knorrie]

I use Microsoft Money for this. There is a report called Tax/Capital Gains which shows the net profit for each round trip trade carried out during the period you specify. When you enter non-UK currency trades, you are asked to specify what the exchange rate is, it even picks up the latest exchange rate from the internet for you, although this is never the same as the one on the contract note, and you can change it later anyway.

I've never had to report this to the Revenue however, as I've never yet exceeded the tax exempt limit, so I would be interested to hear exactly what they accept. MS Money has been approved by Customs & Excise for VAT purposes though so maybe they got this checked out too.

MS Money gets slated by many people, but I've used it for both personal and business use since 1994 and wouldn't know what to do without it. I have the Personal and Business edition, while I don't think the basic package that you often get free with PCs includes full support for investments, I'm pretty sure the middle-range Financial Suite package does.

KenN

 

[frugi]

peugots,

I may be wrong but could you not just send them your broker's monthly statements for the year? Or even a huge stack of daily ones if they're really fussy. The ones from IB, for instance, detail all trades and profits/losses in USD and GBP and I would expect other brokers do the same. I imagine this is what most full time traders do as it would be ridiculous to expect them to plough through every trade manually with a currency convertor to hand, especially given that a few of us make more than 50 trades a day. Surely a broker's statement is as official a document as they could wish for?

However I am not in a postion to confirm this as I have only recently moved from SB but others may be able to.

 

[madasafish]

The IR are very busy. If you give them a £ sterling summary based on your monthly broker statements they will likely accept that.. and I say summary not trade by trade details.

Unless you falsify the figures or they look strange or choose you as an audit case by random there is no reason or time for them to plough through 000ss of transactions..

However keep the details to ensure they can be checked...

 

[madasafish]

and BTW

the above is NOT financial advice, just my opinion...

 

[peugots]

Dear Madasafish,



My base currency with interactivebrokers is in dollars. So the only way to post a summary in british pounds is to calculate the profit/loss for each trade in dollars and convert it to pounds for the exchange rate for the day I did the trade. That is the only way of accurately calculating how much I owe the inland revenue. I certainly dont want to overpay them so it looks like I am going to have to endure the headache of trawling through hundreds of trades. I am dreading this quite frankly. There has to be an easier way.



Andrew

 

[MCGF]

Er......u could fake ur own death?

 

[Skimbleshanks]

peugots:

Why don't you do what most companies do - do the valuation at the year-end? If you do that, you will also have the benefit of the exchange rate working in your favour.

Of, if you must, at end-of-month.

After all, they want to know your gains for the year. Not your gains per trade.

 

[madasafish]

Peugeots

There is an easier way.

Opening Balance of your account in $. at 5/4/2002 Convert to sterling at then exchange rate.
Add back any withdrawals.. in sterling
Subtract any payments in sterling
Closing Balance at 4/4/2003 in $ convert to sterling at then exchange rate.

Closing Balance - Opening Balance +withdrawals - payments = net gain in period in sterling.. all exchange gains/losses fully accounted for...

 

[peugots]

Madasafish,


It looks like you have proved your intellligence in only 5 lines of information. To say I am impressed with that kind of thinking is an understatement.




Madasafish can I ask you is the above approach something your accountant has been happy to accept when you file your taxes or is it an idea you only recently developed. Secondly I know vaguely you are a very active trader but do you trade US shares/futures.


Thanks for the helpful input.

 

[peugots]

For Madasafish

Dear Madasafish,


Would you take a look at this short discussion between myself and a tax specialist. It clearly states that I need to calculate the gain and loss for each transaction using the echange rate for the day I performed the transaction. Hence according to this tax specialist quite a lot of work is involved. Unfortunately it also contradicts with the nice ideas you proposed above thats why I wanted to show it to you. Not sure what to do at this stage. What does your accountant do? Maybe I need a third opinion.....



Here is the short discussion:-






Capital gains on overseas currency dealing account

10 Dec 2003 : [email protected]
Dear Sir/Mme,

Like most people on this board I am a UK citizen and resident. I am also a sole trader and my business involves trading shares. My money is held in my trading account in the United States.During the tax year 2003 - 2004 I have been growing my funds in my US account but I have not repatratiated my funds to Britain and dont intend to until 2005 at the earliest. I expect that by the end of the current tax year ie April 2004 there will be a capital gains liability in my account. But how do I work out what my profits are for the year. My money is all held in US dollars. The pound dollar exchange rate varied quite substantially throughout this year from 1.4 to 1.7 (makes a huge difference). Also it is still fluctuating and may be some other figure by April 2004. I know I would like to choose the figure that is most favourable from my point of view, but what figure should I use when I come to calculating profits. Or what figure will the inland revenue accept? Will the exchange rate figure for April 4th 2004 be okay to use for instance? Incidentally my trades were not long term holds- my typical holding period was 5 days.

I would be grateful for your advice,

With kind regards,
yours sincerely,
Andrew


Reply by the tax accountant:-


13 Dec 2003 : Ian McTernan CTA
Dear Andrew,

Dependent on the number of trades (and as your average hold was five days, I expect there will be quite a number), you will have to use the exchange rate ruling on the day of purchase and the day of sale to work out the gain on each transaction- which can turn losses into profits and profits into losses. This is because you are deemed to acquire an asset- a US $ asset.

The fact that you have not sent any money back to the UK is immaterial as far as CGT is concerned.

A simple spreadsheet and log of US $ exchange rates will enable you to work out the correct gain for UK purposes.

If you need assistance in this area, I would be happy to help.

Regards.

Ian McTernan CTA
McTernan Associates Ltd
Chartered Tax Advisers
[email protected]

 

[peugots]

Madasafish,



I dont want to discount the possibility that the tax accoutant is making things sound complicated just to bump his fee up. BUT neither do I want to discount the possibilty that he is 100% correct either. UNfortunately I am not sure which of these two possibilities is appropriate.

 

[gmca686]

Peugots,
There is another complication with rapid trading regarding CGT, ie to stop "bed and breakfasting" any share sale is tied to purchases 30 days ahead. So if you buy the same share within 30 days of a sale, the previous sale is tied to the latest purchase. This made my CGT a nightmare, until I convinced my accountant and the IR that this was only relevant when straddling the crossover from one tax year to the next. The IR accepts my printed spreadsheet, certified as correct by myself and accountant after I have let the accountant see my broker statements. Therefore, I think you could follow the approach of Madasafish as long as you allow for the 30 day rule.
Hope this makes sense.
regards,

 

[peugots]

gmca,


Thanks for answering. I appreciate the input.



I have a strange feeling that the madasafish method will produce the same arithmetic result as the so called tax specialists method but with far less effort. I wonder if someone who was more mathematically minded than I could verify this.


As you said gmca, any calculation that I produce should be backed up by brokerage statements which again "could possibly" favour the madasafish method because that method takes data directly from brokerage statements without any manipulation.

 

[madasafish]

Peugots

Your tax specialist is correct in his method. However he is also giving you (or him) a HUGE amount of unneccessary work.

Start from BASICS. The tax man wnats to know how much TAXABLE profit you have in £s sterling. that comprises trading gains and losses (realised) plus EXCHANGE gains and losses.

Your tax guy calculates those on each trade. My method does it over the total. Net result should be the same as at the end of the year both give a result in £s.. but your tax guy calculates a sterling profit for each trade - when your account is in $s - and forgets that at the year end he should then recalculate all dollar amounts not physically transferred into £s sterling into sterling BASED on the YEAR END Exchange rate - giving a translation gain or loss... which is then added to the trading gain or loss..

(PS I am a retired accountant not a tax expert but...)

 

[peugots]

Madasafish,



That contribution has potentially saved me hundreds of hours of work,stress, and fees.



So a big thank you to you old boy. You have lifted my spirits today by providing that key accounting knowledge.



Hapy new year mad.

 

[madasafish]

Peugots

Happy New Year to you too

PS a little less emphasis on the "old " boy.. I am oldish but dislike being reminded of it.. and as "you are only so old as you fell", I am still 25 in mind ( I wish):_))))))))))))

 

[peugots]

Sorry mad. I used the term "old boy" in the traditional public school sense of the word. Its a term of "endearment" ex public school boys often used to use with each other. This easily misunderstood phrase has nothing to do with age and in fact I remember having the phrase respectfully first used in reference to myself when I was 25 ie ten years ago !


Your youthful high spreed brain has helped me out tremendously today and that is why I am delighted by the gentlemanly conduct.

 

[sidinuk]

As another accountant I would agree with Madasafish's method of calculating the figures for your return.

Except that the tax year ends on 5 April not the 4th. So you need to calcuate gains/losses from 6 April 02 to 5 April 03.

 

[peugots]

Thanks very much Sidinuk; I appreciate the confirmation.


Happy New Year