Sole Trader status

[minx]

Youll be able to claim all expenses and VAT back etc.

My accountant has informed me that I cant reclaim VAT as I dont charge VAT.......

 

[Airthrey Capital]

My accountant has informed me that I cant reclaim VAT as I dont charge VAT.......

Minx,

Does that mean you are a full time trader with Limited company status?

 

[TheBramble]

My accountant has informed me that I cant reclaim VAT as I dont charge VAT.......

If you don't meet the level of turnover where mandatory VAT registration is required, you can always make a voluntary registration. But you do need to let them know you 'think' you will at some point exceed the threshold or they may not allow you to register. They are very much tighter these days.

VAT Reg is a 'quids in' win-win situation. You're paying the VAT, so you may as well claim it back (for bona fides only of course!). If you're not charging VAT and you go over the threshold, they'll take it as if you had been! Goodbye 15% of your gross!!! (17.5% of the Net - equates to 15% of the Gross).

I hasten to add I'm not trading through my limited company in case BL thinks I've been holding out on him.

 

[Airthrey Capital]

Limited Company status

I have what is probably an overly naiive and simplistic question relating to Limited company status........

Limited company status infers that you have limited liability.......

What if you set up a limited company, open an account with a broker, submit £50k margin, and then go long big time on FTSE.

FTSE then crashes........

The company can't pay variation margin, positions are closed out at a substantial loss.

Company cant pay debt.

What happens?

 

[TheBramble]

I think brokers are pretty choosy which limited companies they'll allow to open an account with them.

Unless you're a 'name' - it's unlikely to happen. For precisely that reason (among others...)

 

[JonnyT]

I have what is probably an overly naiive and simplistic question relating to Limited company status........

Limited company status infers that you have limited liability.......

What if you set up a limited company, open an account with a broker, submit £50k margin, and then go long big time on FTSE.

FTSE then crashes........

The company can't pay variation margin, positions are closed out at a substantial loss.

Company cant pay debt.

What happens?

Limited Liability only exists if the Directors have behaved responsibly and without negligence. If they haven't then Directors can potentially be liable.

JonnyT

 

[TWI]

Clearers sometimes come across this problem with spread traders that they have allowed to leverage up to the hilt. Usually by the time the clearer closes out the position it is well into margin call and the trader will claim they cannot afford to pay. There are many cases where they never do but lose their registration and will never be able to open another account. Trick is to have enough margin to be able to take that position in the first place and a broker who allows you to run it.

 

[minx]

If you don't meet the level of turnover where mandatory VAT registration is required, you can always make a voluntary registration. But you do need to let them know you 'think' you will at some point exceed the threshold or they may not allow you to register. They are very much tighter these days.

VAT Reg is a 'quids in' win-win situation. You're paying the VAT, so you may as well claim it back (for bona fides only of course!). If you're not charging VAT and you go over the threshold, they'll take it as if you had been! Goodbye 15% of your gross!!! (17.5% of the Net - equates to 15% of the Gross).

Dont suppose you happen to know what these levels are? What if you're reclaiming VAT and you 'intend' to start charging VAT but you never do, will they want all the VAT back?

 

[trendie]

Minx,

VAT threshold has been raised from £56,000 to £58,000 from April 1 2004.

( I got my VAT quarter form this morning !! )

www.hmce.gov.uk

 

[minx]

Minx,

VAT threshold has been raised from £56,000 to £58,000 from April 1 2004.

( I got my VAT quarter form this morning !! )

www.hmce.gov.uk

It says that value of your TAXABLE supplies have to be over £58k, I dont believe thats the same as profits, is it?

1.4 What are taxable supplies?
The supply of any goods and services which are subject to VAT at any rate, including zero-rated, are called taxable supplies. They are referred to as taxable supplies whether you are registered for VAT or not. If the value of your taxable supplies is over a specified limit, you are required to register for VAT - see paragraph 2.1. If you are registered for VAT, you must charge and account for VAT on all your taxable supplies from the date that you are first registered.

 

[trendie]

Minx,

If your TURNOVER exceeds £58,000.

 

[TheBramble]

What if you're reclaiming VAT and you 'intend' to start charging VAT but you never do, will they want all the VAT back?

All depends what you mean by 'reclaiming'.

If you're charging clients for products and/or services and specifying VAT as part of the invoice, you need to show your VAT Reg No. on the invoice.

If you explicitly charge VAT without being registered I believe it's false accounting which carries a potential for a custodial sentence.

You can claim a gross amount without explicitly itemising the VAT content. That way you're covered if you subsequently do go down the VAT route.

If by 'reclaiming' you mean from the C&E - it doesn't (or rarely!) work that way. You reclaim your VAT from the C&E by paying them less VAT! I.E. VAT on your Sales is generally more than your Purchases (except perhaps at start up and other exceptional purchase times).

If you made a regular habit of purchasing more than you were making in Sales, VAT would be the least of your problems.

 

[trendie]

Brmble is correct,

You cannot charge VAT unless you have a VAT registration number.

If you intend to, as happened to me, you put on the Invoice that "VAT number is applied for, and a further VAT-only invoice will be submitted".

You trade as per normal.
Only once the registration is complete, and you have a VAT-number, can you submit a VAT-only invoice for previous invoices.

Reclaiming VAT;
Suppose you have an Invoice for services of £10,000.
You would add VAT of 17.5% = £1,750. ( you owe the C&E )

You buy a computer for £2,350; ( actually, you paid £2,000 and £350 VAT ).

You "claim" the VAT by paying C&E (1,750 - 350 ) = £1,400.

The pleasures of being an unpaid tax-collector !!

 

[Airthrey Capital]

Well, I went to see may accountant on Tuesday to see if he could assist me with the whole situation regarding tax treatment of full-time derivative traders. (Sole trader / Ltd co. / offshore etc)

After spending half an hour explaining derivatives to him. his response was...

"I haven't got a Scooby"...!!!!!!

Not terribly reassuring.

He is going to do some research.

Anyone out there got a decent accountant they can recommend?

Doesn't have to be located in Scotland, but would be preferable.

Thanks

 

[Healey]

Try Moore Stephens - they are a national network (franchise ??) of accountants who mainly deal (I think) with the smaller end of the market. Tel Glasgow 0141 567 4599, Edinburgh 0131 473 3599.

Being somewhat larger, they usually have access to someone who knows.

 

[iceman1265]

Blairlogie - you may find it helpful to check out the Inland Revenues Statments of Practice SP 3/02 - Tax treatment of transactions in financial futures and options . You can download a copy from http://www.inlandrevenue.gov.uk/pdfs/ir131.pdf
I also found the attached document from LIFFE useful. Can't remember where on the 'net I got it from though.

Iceman

 

[frugi]

Instead of paying an accountant you could write to your tax office and simply ask how they would like to tax you, given your circumstances. I did this in April (I day trade futures full time) and predictably have received no response. However I did ask them to acknowledge receipt of the letter and they obliged.

So I will continue to submit capital gains tax forms as I have in the past as an ordinary private investor (CGT being considerably more advantageous to me than paying income tax and NI) and if at any point they decide I am a self employed sole trader after all I have some cash laid aside to pay the difference. If they try to accuse me of evasion I shall point them to the letter I wrote before embarking on full time trading which they clearly received.

 

[frugi]

Well I tempted fate with that last post! The tax man has suddenly awoken from his slumber and offered a reply to my letter. I quote both below for clarity.

It almost seems as if I am being offered a covert chance to choose my status depending on how carefully I word my reply! Any suggestions as to how to tilt my reply in favour of capital gains taxation without actually lying?

My intended answers will be (see thumbnail for questions), briefly:

1 Back and forward testing of system
2 Purely from buying and selling futures. No turnover of stock.
3 Money management, i.e strict % of capital per trade, stop losses, running profits, no overnight risk
4 ?


My letter:

From the tax year 2004/5 onwards my full time occupation will be “day trading” US currency futures through a registered stockbroker from home, using my own capital. In other words my situation is about to change from “casual” part time investor to fully fledged professional trader. I expect my income from this activity to be around £6000 in the first year, with luck increasing to around £10000 as my trading skills develop. There is obviously a possibility I could incur losses instead! I am likely to make up to ten trades per day. I will have no other form of employment and will hire no employees. My activities will incur some directly related expenses such as software subscriptions and internet data feeds. I intend to do my own accounts as they should be simple. I alone will obviously be making all my trading decisions.

I have been informed that the Revenue’s treatment of this activity/occupation varies depending on which tax office handles the return, therefore I would be grateful to know whether you would intend to tax me either:

As an ordinary private investor subject to the usual capital gains tax rules for investment gains/losses

or

As a self employed individual subject to NI contributions and income tax?

If it is the former then I will assume I can continue to submit an R40 and also a capital gains return, where applicable, as I have done for the last few years, unless you inform me otherwise. This is obviously the treatment I would prefer as it would make my accounts a lot simpler.

However if it is to be the latter I assume I should swiftly register as self employed in the usual manner and later submit a self assessment form instead.

I would be very grateful for some clarification on this matter as the new tax year is fast approaching and I do not wish to unwittingly evade tax. If you require any further information or details I will gladly provide them.

The reply (sorry about poor quality):

 

[Racer]

I expect my income from this activity to be around £6000 in the first year, with luck increasing to around £10000 as my trading skills develop.

If that is the amount why do you want to go along the income tax rather than CGT route?
You will need costs incurred to be at least the level of CGT allowance... and that is a lot of costs compared to the 'income' of £6K

 

[frugi]

I don't. I want to go along the CGT route as I said above! Perhaps it would have helped my cause if I'd put "profits" not "income" but it's too late now. Unfortunately it looks like however carefully I word my reply I will still be deemed a professional trader...ah well - welcome to the world of compulsory NI payments, tedious accounts and low personal allowances Frugi!

Any suggestions as to how to tilt my reply in favour of capital gains taxation without actually lying?

If it is the former then I will assume I can continue to submit an R40 and also a capital gains return, where applicable, as I have done for the last few years, unless you inform me otherwise. This is obviously the treatment I would prefer as it would make my accounts a lot simpler.