Prop trader - income tax

Sheen

Member
67 0
How do UK-based prop traders handle their tax affairs? I assume the most popular route is being employed by one's own limited company which then pays the trader a salary and/or dividend.
However, this means that out of every £100 a trader makes in the market he actually keeps around £43 in his pocket.

Example:
£120k annual trading profit
- £18k desk fees
---------------------
£112k before split
90% split rate
----------------------
£100.8k payout to the trader's limited company

£41.9k gross salary (the highest salary possible that does not fall into higher, 40% tax band) , no other significant tax-deductible costs (that equals £31.4 net salary)
£100.8k - £41.9k = £58.9k earnings before tax

20% corporate income tax rate = £11.8k tax
------------------------

£100.8k - £58.9k - £11.8k = £30.1k net profit of the ltd company
32.5% tax rate on dividends
32.5% * £30.1k = £9.8 tax on dividend
-------------------------
£30.1k - £9.8k = £20.3k net dividend received by the trader

TOTAL NET PAY FOR THE TRADER:
£31.4 + £20.3k = £51.7k

All the above show how unfavourable tax regime the UK has. Am I right in my calculations, or is there another way for prop traders to reduce the tax they pay?
 

mazdaq100

Junior member
42 0
I think there are a couple of errors with your calculations - if desk fees are £18k then you are left with £102k before split.

Also the net profit of the ltd company is actually £58.9k - £11.8k = £47.1k
 

Sheen

Member
67 0
I think there are a couple of errors with your calculations - if desk fees are £18k then you are left with £102k before split.

Also the net profit of the ltd company is actually £58.9k - £11.8k = £47.1k

Yes, obviously it was my miscalculation. Is Ltd company the most popular method used by prop traders to deal with their taxes?
 

Sheen

Member
67 0
Clear through Kyte/ibet and you do not have to pay tax.

Could you explain exactly how it works? Also, I am not sure if a prop trader has any choice at all if his prop trading company uses a different clearing firm.
 

Trading Spaces

Well-known member
367 16
Could you explain exactly how it works? Also, I am not sure if a prop trader has any choice at all if his prop trading company uses a different clearing firm.

You trade directly using cqg,tt,etc the ibet omnibus account. They issue you a spread bet in your account for your trades. 40k minimum to open an account.
 

terribletrader

Junior member
11 0
1) Surely those figures above (100k earned , you only keep 51k?) could not be correct - why would you go through all the effort of setting up a company to go on and pay 50% in tax ? I remember thinking it was about 40% tax but that was a few years ago , did things change when the 50% tax rate band came in for income tax????

2) iBet

anyone any experience of iBEt ?

Do they have many people doing iBet ?
Is there anyone here who has tried iBet and whats your feedback?
i have looked into iBet and as I understand it your paying your usual cost of XTrader for example plus other costs like a VPN charge for trading remotely and the data feed charges to exchanges. So your probably talking about £80-90 a day.

The costs of the RTs are higher - especially significantly higher in US markets like T note/Mini ES etc. Other markets like Bunds / Gilts etc are not too bad compared to what you might be used to.

The offset of the higher costs being your in the spread bet so no tax.

Have guys trading a profit with iBet actually successfully won over HMRC when it comes to their tax returns etc?

The other thing being the lack of leverage with iBet . I don t think they are very competitive on day margin etc comapred to the likes of Marex etc?

I stand to be corrected on the above would be good to hear from anyone else their thoughts!
 
 
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