Tax liability

[busfarehome]

Hello all,

I was hoping someone would beable to enlighten me regarding Tax.

I understand that gains from Spreadbetting are tax free as long as it is not sole/main source of income.
But what about if the only income I have is from Spreadsbetting and I have no other job or income?

Would I be liable to pay 20% tax on any spreadbetting income over the single mans allowance of £7475?

 

[anley]

Are you at present making more than £10,000 pa from spread betting?

Did you also make more than that in every one of the last 3 years (if trading).

 

[jd1888]

Hi Busfare,

I am no tax expert but according to what I've read on the HMRC website it all entirely depends on how they view the activities that you carry out and how well you can argue that what you are doing is "gambling".

On the website they gave an example of an exchange trader or market maker, (I can't remember exactly) because of the way they can operate like trading inside the spread, offsetting trades with clients to reduce their risk and things of that nature they were classed as traders not "gamblers" so were liable for tax.

I can't remember the web address but I'm sure you could find it easily enough.

As I am sure you are aware it's a sticky issue. I think the best thing to do if you are looking for a clear cut answer would be to phone or visit HRMC and tell them about your "friend" that spread bets, giving them as much detail as you are willing to give away (probably best to leave out your name of course) to get the answer you are looking for.

 

[Hoggums]

Read this. http://www.traderstaxclub.co.uk/public/89.cfm?sd=2 Their answer is no. But I'm sure you can find plenty of professionals who say yes.

But the simple fact is - no one knows, not even HMRC. There have been no test cases in law as yet.

My advice is to find a good accountant willing to fend off HMRC and save the tax money in case you do get investigated. I don't think HMRC would be willing to take this to court as it would open the door for tax relief against losses and also from their previous record trying to prosecute gamblers for non payment of tax.

 

[busfarehome]

Thanks for the replies and the link provided.

anley, no I am not making 10K PA, this is my first year but I am making a small profit each month, enough to live on.
I am thinking ahead and as I scale up I would expect to make between 15-20K PA.

Yes JD I am aware this is a sticky issue, good idea about contacting HMRC anonymously.

Thanks for the link Hoggums, so am I right in thinking that a lone spreadbetter working on 1 PC from his living room has never been prosecuted or made to pay tax on profits from spreadbetting in the UK before?

In the article it mentions perhaps trading on behalf of family or friends but I always intend to just risk my own money.

At the moment I am with SLM but in the future I did intend having 3 live accounts, 1 with Hotforex and 1 with Thinkforex, I understand they are not classed as spreadbetting firms.
They are both NDD STP, no commission to pay but it is included in the spreads.

Is this a grey area too or would I need to declare profits from those 2 companies because they are not classed as Spreadbetting companies?

 

[anley]

anley, no I am not making 10K PA, this is my first year but I am making a small profit each month, enough to live on.

Make the money then worry about any tax issues.

Making a living from trading is very very hard so the chances of you or anyone else (not picking on you directly) of having tax issues is slim.

Not saying you cannot do it, but nevertheless there's little point in worrying about tax. Plus, the tax man has bigger fish to go after than someone making less than £50k a year via spreads when they are probably some people out there making in excess of £500k.

PS. Anyone ever considered that the spread betting firms are probably feeding the taxman information on their biggest winners. The taxman is a viscious thug at the end of the day so I wouldn't be surprised if he leans on the spread betting firms, ie tell me quietly or I'll tie you up in audits for the next 5 years. Forget about data protection and client confidentially, the taxman doesn't care about those things, only collecting.

 

[busfarehome]

Make the money then worry about any tax issues."

No, I like to plan ahead and HMRC do investigate the small fish too, I know that from experience with my previous small company (unrelated to Forex/finance).

I am well aware that 95% of people will lose money at this and I feel sorry for them and also you if you are having a hard time, not having a go at you personally.

The first couple of months I thought I would never make money at it then it suddenly clicked and I am making a living it it with a relatively small amount of capital.
I am going to scale up and then Tax will be an issue.
I know markets can change but I am happy with my 3 different strategies in ranging and trending markets.

Please don't derail this thread, if you want to discuss this further feel free to PM me but I would like to keep this thread on the topic of Tax laibility, not just from spreadbetting but from the other companies I mentioned in the post 2 above.

 

[pineappleman]

First off you need to win substantial money either as a few one-offs or steadily as an income before this becomes an issue.

If you do make a living from spreadbetting then you prob have to pay tax if it is your only income or an income they can prove you "partially" needed to live off of even if you have a small regular job.

If you want it to stay tax free with the knowledge you'd win in court then you need a regular job to live off, go make your millions trading spreadbets, then retire rich and happy having paid no tax on those millions. But while you are making your millions you need to be stacking shelves in Tesco too to keep the taxman at a distance/without a leg to stand on in court.

If you keep your spreadbet statements to prove you never withdrew 1 penny from your account that is proof enough you never lived off spreadbet winnings even just once. That would stand up in court under current UK law as gambling winnings are tax free. Remember all spreadbetting company websites state this in clear English so they're accountable to be dragged before the judge if you are!

Like Hoggum said, if they challenged this without the "he's living off of the winnings" argument in their corner then at the end of the day they're opening up a can worms relating to tax relief on losses which they DO NOT want to open. They will have to let it slide.

I know of someone (not personally) who made a fortune on major FX spreadbets but worked full time. This issue came up and it was an ongoing row. He won. Bottom line is, gambling is tax free if you are not dependent on it to live. Period.

And good advice about the accountant idea - getting a professional to handle any sizeable winnings from spreadbets is going to add muscle to your case anyway and keep the taxman away. You shouldn't need this in an ideal world but it's not an ideal world and best to help yourself as much as you can.

I have heard people in the tax office say "off the record" of course: "look how would you feel if your neighbour was making lots of money paying no tax and you had to see it?" - that's the best argument they can come up with - a play on your heartstrings. Tax is burden on us all to prop up a dying country called Britain. I say let it wither and die, but that's another issue.

I have spoken with those trained monkeys at the tax office about this a few times now and basically the answer changes with each phonecall as they have no idea. To them "computer says no". They are clueless idiots. Let's be honest, they're not going to be
a). very knowledgeable if they pick up a phone at a tax office for a living and
b). on your side if you are trying to avoid paying tax

They have been trained to scare you in these matters under the big slogan "EVERYONE MUST PAY!!" but that's just their reality as they're employed by a government that has no handle on anything to make sure people pay tax. The government don't even know how many legal or illegal immigrants there are in the UK let alone whether they're all paying tax or not. The tax office will say "pay up" but we know better - there's a little thing called "UK gambling law" which they do not have the power to over-rule.

So do yourself a favour: if you ever get to the stage where you are making lots of cash trading spreadbets then throw it at an accoutant who truly understands these things and live off something else - ideally NEVER withdraw a penny from day 1 of your broker statement.

 

[anley]

The first couple of months I thought I would never make money at it then it suddenly clicked and I am making a living it it with a relatively small amount of capital.

So you've had a good run for a few months and think you're 100% heading for the big time? I wouldn't be so confident if I were you.

Look for 2-3 years minimum of proper and constant trading profits before you think you can make it and even then it's harder to keep it than make it.

As for planning ahead do this. Put 40% of your profits away for safe keeping then if the taxman calls you'll have the money available. That's THE only proper answer here because the taxman can do many things to mess you up, including moving the goal posts mid game.

 

[anley]

I am well aware that 95% of people will lose money at this and I feel sorry for them and also you if you are having a hard time.

It's dangerous and reckless to presume in this business.......

 

[busfarehome]

So you've had a good run for a few months and think you're 100% heading for the big time? I wouldn't be so confident if I were you.

Look for 2-3 years minimum of proper and constant trading profits before you think you can make it and even then it's harder to keep it than make it.

As for planning ahead do this. Put 40% of your profits away for safe keeping then if the taxman calls you'll have the money available. That's THE only proper answer here because the taxman can do many things to mess you up, including moving the goal posts mid game.

To answer your question, no I do not think I am 100% heading for the big time.
I am making a living at it with a relatively small amount of capital and in the unlikely event that I carry on I wanted to know if I would be liable to pay income or CGT.

I do like your suggestion of putting away 40% of any profits so thanks for that.

 

[busfarehome]

Pineappleman, thanks for the detailed response, I appreciate the time it took you.
I can see this is something you have had on your mind for a long time.

There will not be any big one off wins as I am risk averse so the profits will be slow and steady.

Yes I will print out my statements every month and keep them on file and I could live off the proceeds of the sale of my property as I have recently downsized.
It had crossed my mind that I could not withdraw any profits from the spreadbetting accounts but I was not sure if it would still be taxable but I am assuming from your reply that if it is kept in the account it is not taxable until it is withdrawn?

Yes an accountant would be worth paying for, I would have thought even if I made a small amount like £10,000 in a year it would be worth me finding an accountant.

Something I have been considering is keeping my spreadbetting account and not withdrawing any funds, just slowly growing the account over many years and opening up an account with a NDD STP broker (quite a good choice out there and I have a few demos running) either paying commision directly or through the spread and using this to withdraw a few hundred pounds a month. I understand any profits from this type of broker will be liable for tax but would it be income or CGT?

 

[anley]

Be careful about having a load of cash with a spread better. Firstly they aren't the most secure companies out there and as they're far from being in the club the government will hardly bail them out.

Secondly, they don't pay interest on cash balances, although I'm sure that can be arranged if the client is good enough.

Nevertheless I wouldn't deposit more than 300% of my expected margin. But then you have to transfer money out into an account and perhaps that means you're 'withdrawn it'. But perhaps not if you setup a separate account just for that money.

 

[barjon]

Read this. http://www.traderstaxclub.co.uk/public/89.cfm?sd=2 Their answer is no. But I'm sure you can find plenty of professionals who say yes.

But the simple fact is - no one knows, not even HMRC. There have been no test cases in law as yet.

My advice is to find a good accountant willing to fend off HMRC and save the tax money in case you do get investigated. I don't think HMRC would be willing to take this to court as it would open the door for tax relief against losses and also from their previous record trying to prosecute gamblers for non payment of tax.

That's not entirely true, Hoggums, the legal basis of no tax on spreadbetting even if professional and only source of income is http://www.hmrc.gov.uk/manuals/bimmanual/bim22017.htm

The grey area is if you do something associated with it for reward - like selling trading tips/systems - when the whole lot might be considered by way of trade and taxable.

cheers

jon

 

[LookatMe11]

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