Setting up a Company to trade

[Burney]

Hi,
Wonder if anyone can help with this-I am thinking about trying to set up a company or trust to use to trade with-the idea being(big assumption here) that it may be more tax advantagoues to trade under a company umbrella rather than as a private individual.I would still be working as an employee full time in my day job but am surmising that if I have set up a company I could offsett some trading exepnses etc from gains thus minimising amounts that go to the Tax man.
I trade solely US commodities-has anyone any expereience or knowledge of this are ,I would love to know the upsides and downsides of this type of set up-if indeed it can be done.

Cheers

Alan

 

[Henry]

Hi, it's been discussed on here a few times before, and the consensus seems to be it's just not worth it.

Apart from the expense of the formalities of running a company (annual returns, accountants fees etc), you would end up paying more tax because your company would pay corporation tax on any profits, and then you would pay tax personally when you take money out either as a dividend or salary (I'm assuing you would want to take the money out at some point). You also have to consider whether your broker would be willing to open an account in the name of your company. I have a couple of Ltd companies, and decided long ago it wouldn't be worth using them to trade through.

You can still offset some of your expenses against tax as an individual.

Of course this is all just my opinion, and ideally you should seek the advice of an accountant

H.

 

[Burney]

Hi Henry
Thanks for your reply and the info-be interested to see any otehr views-but will definitely check it out a bit more with accountant-have a good Christmas


Alan

 

[fowkesp]

Yep, I'm doing this and trading futures through my Uk Ltd Co. But I already had the company set up for my IT consulting business and am using surplus funds from those activities to use as trading capital. I would be paying accountant's fees anyway, so there's no problem there.

One thing about taxation, you can offset such things as software costs, datafeed costs against profits, and any remaining profits will be subject to the prevailing corporation tax rate. Currently this is 10-20% for small companies on a sliding scale dependent on profits. For the first £10k profit the rate is 10% for instance, rising to 20% top rate at £50K profit. Once the profit is taxed, you can distribute the remainder as dividends with no further taxation due anywhere, provided the individuals receiving the dividends stay in the lower tax bracket.

So it can potentially be quite tax-advantageous: a £10K profit would attract £1K CT charge. The remaining £9K could be paid straight to a basic-rate taxpayer with no further tax charge.

 

[spoon102]

Individuals have a Capital Gains Tax exemption of roughly £7500. Companies do not, you will therefore pay tax on the full gain in a company.

My advise is dont bother.

 

[Skimbleshanks]

So why not do both and make the best of both worlds?

Then if you're still in danger of sitting in front of your monitor twiddling your thumbs, why not open a SIPP (self-invested personal pension) which can be done through the company and trade that.

 

[Burney]

Hi Seems to be quite a division in terms of whether this is worth while or not-my own views were along the lines of Skimbleshanks and of Fowkesp i.e. that you may be able to offset software data feeds books et etc (which I already pay for from my salary) through the company then pay tax whereas as an individual I pay tax on my gross income.Big difference between individuals and companies.

Individuals get earnigns whichh are taxed gross and then they are left with money to spend.

Companies on the other heand have their income (fees,profits whatever) spend and are THEN taxed on the amount left.

I am guessing that if your profits are less than £7500 or £15000 per couple then the extra expense/hasle is not worth it-howecer IF (big if) you are making substantail gains on an annual basis say £20,000 + then it may prove worthwhile.

I will look into it a bit further and report back if I get any worthwhile info.Meantime love to hear more of all views and if anyone can give me any more details about how to go about it then I would be grateful.


Alan

 

[spoon102]

Income from gains on shares can be taxed as either Capital Gains or Income Tax. The gains will be subject to Income Tax if the Revenue consider that your investing activities amount to a 'trade'. The things they look at are profit motive, frequency of transactions etc etc. If it is decided that your investing amounts to a 'trade' you will then be able to deduct business expenses which would include data fees etc. There is no need to trade through a limited company in order to do this. ie expenses would be allowable as an unicorporated sole trader. It is normally more tax advantageous to argue that investing should be subject to Capital Gains Tax. You will still be able to deduct commission and stamp duty when calculating the CGT. As I said before if you made a gain of say £7000 it would be completely exempt from tax if you can argue it is subject to CGT. If you wish to claim for your data fees then you will be taxable to Income Tax (as a sole trader) or Corporation Tax (as a limited Company). Therefore the £7000 gain would be fully chargeable to tax (as there would be no annual CGT exemption) however data could be deducted.

This all assumes that you are going to make a profit on trading and that will be the biggest problem you will have to overcome!

 

[philhackett]

http://www.sovereigngroup.com/offshorejurisdictions/viewinfosheet.asp?CountryID=13

 

[Captain 7]

As for the US it is better to trade under a corporation. As an individual you are limited to deducting losses of $3000 or below. If you happen to lose $10,000 and make a profit of $50,000 you can only write off $3,000 agaisnt the $50,000 profits thus paying taxes on the $47,000. As a corporation you would be able to write off $10,000 agisnt the $50,000 and pay taxes on the $40,000.

 

[Steve2004]

The answer depends on the level of income you earn from trading and from your other sources. Trading through a limited company is more tax efficient up to a certain level but, as previously mentioned, you will pay tax on dividends taken from the company. There is also the option of trading through a hybrid LLP / Ltd structure. If your circumstances suit the latter this is by far the most tax efficient option, with substantial tax savings available over limited company or sole trader.

 

[adamcpf]

Hi there, has anyone here ever had any experience using an International Business Company (IBC) registered in an offshore domain to run their respective trading business. They are fairly cheap to start up and run. Of course there are numerous tax benefits, the only foreseeable problem would be bringing the money "on-shore". Unless of course you use an offshore bank and they provide you with the relevant credit and debit cards to use. Any input would be greatly appreciated.

Here is a site i've been looking into about this subject.
offshore company. incorporate your new offshore company today.

Adam