frugi
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A bit off topic I'm afraid, but today I've mostly been digesting a scintillating tax guide, with the aim of deciding whether to trade as a sole trader, limited company or simple private investor. Naturally the pub has other plans for my sorry carcass, but so far I have managed to resist its tempting clutches. 
My decision will hang in the balance till April, but given the ability to double 'our' CGT allowance by opening an individual account in my obliging lady's name, the third is currently looking by far the most attractive (and blissfully simple) option.
But disregard my lucky postion and imagine you are an individual trading full time with 'just' the c£8k CGT allowance to hand and no other disposals for the year apart from those incurred in the course of your work.
Why would you want to be a certified self-employed trader?
The only advantage to this that I can see is the ability to deduct expenses and capital allowances for PCs etc., but this minor benefit is surely outweighed by the effective c£8k tax free allowance of the 'CGT route', not to mention that the self-employed are liable for NI (at least 8% of profits between c£4.5k and c£30k), and also if one has no other income the CGT rate is marginally kinder than the income tax rate, being (once above personal allowance) 10% for the next £2k or so, then 20% on the rest up to about £30k (unlike the 22% of income tax). And to top it all income tax starts kicking in at a much lower level of earnings than CGT (10% at c£4.5k then 22% at c£6.5k).
If any of you are self employed traders I would love to know why you chose this route above the 'ordinary private investor' route? Perhaps the taxman forced you to, perhaps there are advantages that my clouded head has entirely failed to notice? If it's no imposition I'd be glad to know your reasons.
Anyway I intend to write to the taxman saying what I trade, how often I trade, how much I expect to make etc. and hope that he agrees that the CGT route is best for us both! I may, just this once, ask an accountant to write on my behalf in case Hector suddenly takes a zealous interest in my financial affairs of yesteryear (which are legally pristine but perhaps a little odd and certainly missing some SB profits).
As an aside, for those of us who are indubitably below the CGT allowance (for whom I imagined life was simple) I'd like to point out a paragraph that states that
'from 2003/4 onwards individuals will not have to complete CGT pages if their disposal proceeds do not exceed 4 times the annual exempt limit and their chargeable gains do not exceed their own annual exemption.'
I'm probably the only person not to be aware of that clause, but it surely means that even if one doesn't make a taxable gain in the year, one would still have to fill in a tedious CGT form if disposals exceeded £31600. For a stock day trader this figure is bound to be exceeded quickly. Harsh and quite unecessary IMHO, but all part of running a responsible business I suppose.
However I assume that the 'disposal proceeds' of futures such as ES are simply the profits accrued as opposed to the notional size of the positions, which would make life for the non-CGT payer more rosy. Is this correct? If not it would mean one would only have to trade one ES future (value c£32000 at the mo) to be obliged to fill in a CGT form regardless of profit. Now that would be a pain.
I also hope futures are exempt from the bed and breakfasting rules.
I'll cease waffling and get back to good old Edwin Lefevre - the best book on trading written IMHO. Shame I didn't read it earlier, would have saved me a few quid I reckon.
My decision will hang in the balance till April, but given the ability to double 'our' CGT allowance by opening an individual account in my obliging lady's name, the third is currently looking by far the most attractive (and blissfully simple) option.
But disregard my lucky postion and imagine you are an individual trading full time with 'just' the c£8k CGT allowance to hand and no other disposals for the year apart from those incurred in the course of your work.
Why would you want to be a certified self-employed trader?
The only advantage to this that I can see is the ability to deduct expenses and capital allowances for PCs etc., but this minor benefit is surely outweighed by the effective c£8k tax free allowance of the 'CGT route', not to mention that the self-employed are liable for NI (at least 8% of profits between c£4.5k and c£30k), and also if one has no other income the CGT rate is marginally kinder than the income tax rate, being (once above personal allowance) 10% for the next £2k or so, then 20% on the rest up to about £30k (unlike the 22% of income tax). And to top it all income tax starts kicking in at a much lower level of earnings than CGT (10% at c£4.5k then 22% at c£6.5k).
If any of you are self employed traders I would love to know why you chose this route above the 'ordinary private investor' route? Perhaps the taxman forced you to, perhaps there are advantages that my clouded head has entirely failed to notice? If it's no imposition I'd be glad to know your reasons.
Anyway I intend to write to the taxman saying what I trade, how often I trade, how much I expect to make etc. and hope that he agrees that the CGT route is best for us both! I may, just this once, ask an accountant to write on my behalf in case Hector suddenly takes a zealous interest in my financial affairs of yesteryear (which are legally pristine but perhaps a little odd and certainly missing some SB profits).
As an aside, for those of us who are indubitably below the CGT allowance (for whom I imagined life was simple) I'd like to point out a paragraph that states that
'from 2003/4 onwards individuals will not have to complete CGT pages if their disposal proceeds do not exceed 4 times the annual exempt limit and their chargeable gains do not exceed their own annual exemption.'
I'm probably the only person not to be aware of that clause, but it surely means that even if one doesn't make a taxable gain in the year, one would still have to fill in a tedious CGT form if disposals exceeded £31600. For a stock day trader this figure is bound to be exceeded quickly. Harsh and quite unecessary IMHO, but all part of running a responsible business I suppose.
However I assume that the 'disposal proceeds' of futures such as ES are simply the profits accrued as opposed to the notional size of the positions, which would make life for the non-CGT payer more rosy. Is this correct? If not it would mean one would only have to trade one ES future (value c£32000 at the mo) to be obliged to fill in a CGT form regardless of profit. Now that would be a pain.
I also hope futures are exempt from the bed and breakfasting rules.
I'll cease waffling and get back to good old Edwin Lefevre - the best book on trading written IMHO. Shame I didn't read it earlier, would have saved me a few quid I reckon.
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