Trading as a business

[hampy]

Hi all,
Having taken advice from an accountant I am thinking of setting up as a business to intraday trade the S+P e-mini thru IB, instead of spreadbetting.
The theory is as follows:
I have a full time ( average 35 hrs per week ) shift working job, and pay tax @40%. The shifts fortunately mean I should be able to trade on average 3 days per week. ( e-mini hours )
It has been suggested that if I set up as a business I may offset the purchase of my 2 new computers, broadband and charting fees against my highest PAYE rate, therefore 40% in my case.
In addition if at the end of the tax year i have made a net trading loss, ( highly likely in the 1st year i guess ) then this loss may also be offset against my PAYE @ 40%. This seems too good to be true at 1st sight.
I'd be grateful to hear from anyone who has looked in to this or has been through the process
Thanks in advance,
hampy

 

[oatman]

If you're setting up as a futures trader you can also register for VAT and claim back input tax. Futures is exempt from VAT.

 

[Skimbleshanks]

And in return for all that you lose your personal CGT allowance of £7,900 for the tax year 2003-2004.

I would suggest that you only consider setting up as a business AFTER you are able to make more than £7,900 per annum profits in your name to use your CGT allowance, and £7,900 profits in your wife's name, etc.

Just make sure you keep all the receipts for the computers, broadband, data fees, etc just in case you decide to set up as a business later, as you can claim receipts up to 18 months prior to the start-up of a business I believe. You'll need to check this last bit as it certainly used to be 18 months, but it may have changed.

 

[hampy]

Thanks folks, I guessed it wouldn't be that simple and there would be some conflicting advice.
Oatman, Never been involved with Vat, so could you please explain input Tax.
Skim,The explanation that I'd previously had was that with futures or other derivatives you do not physically own a piece of a company as you would with trading shares and therefore any profits are subject to income tax and cannot be included in a CGT allowance anyway. As I only invest in ordinary shares thru an ISA the loss of a years CGT allowance would have no consequence for me. Any thoughts?
hampy

 

[oatman]

If you buy a computer and pay VAT, that's input tax.

 

[foghorn]

Just make sure you keep all the receipts for the computers, broadband, data fees, etc just in case you decide to set up as a business later, as you can claim receipts up to 18 months prior to the start-up of a business I believe. You'll need to check this last bit as it certainly used to be 18 months, but it may have changed. [/B]

Correct however in this case you cannot reclaim the VAT on these items, AFAIK (at least you couldn't when I did this five years ago)

 

[waytogo]

As an aside to this question, if one is trading futures direct access, and one does not set up a company, does anyone know if there is an obligation to inform the taxman that you are trading even if you are not making any money? i.e. declare oneself as being self-employed and therefore have to pay NI? or is there another option?

 

[Skimbleshanks]

I'd not heard that about futures and CGT. If so, it would mean going through all your trading records to separate the two.

The only thing I would say is the least you constrict yourself with officialdom and red tape, the better. That includes VAT. When you get to a situation when your tax liability becomes a problem, just totter down to a specialist tax lawyer who will be worth every single penny you pay him.

 

[spoon102]

I think you can only reclaim VAT if the 'business' has vatable supplies as well as exempt supplies. i.e. if the business only dealt in futures trading the input tax recovery would be blocked.

 

[madasafish]

VAT? Forget it imo as a former FD. The filling in forms just to register is a pain and then you have to do quarterly returns .. and for what a measely £200 on a computer..

No: far better to trade as a private individual. If you make loadsamoney then you can offset part of your housing costs/ heat/light etc as running costs.. If you are making over £100,000 per year then get yourself a knowledgeable accountant...


You can offset all your ISP/broadband costs of course as a neccessry trading expense and your software licence and .. etc

 

[kevin546]

Re private individual and off-setting some housing costs can this get you into a problem that while you are trading as a private individual to claim on part of your house etc can involve the local authority applying certain business costs to/part of your property.

Re all the above have you tried www.taxationweb.com

I am considering full time trading in the future so this has been an interesting thread. I currently spreadbet and use futures on the ftse index (getting a feel for direct access) and have been advised that if I trade well with spreadbetting while it does not currently attract income tax if you are trading regularly and profitably there is a chance that the revenue will first look more closely and second may consider what you are doing is a business as a professional trader. This could lead to income tax and as such I was advised to add the profit in the remarks section of my tax return which means I have notified them so they cannot claim I did not inform them in a suitable manner. This was from a chartered accountant who suggested this was one of a few ways to deal with spreadbetting profits.

He basically said that if you were trading to such an extent that you were full time then you would be seen in the same light as a professional trader and subject to taxation in the usual manner.

 

[stevem12]

I was advised that futures profits had to be taxed under CGT as the IR didn`t recognise "Trading" as a "Trade" under schedule d, therefore you couldn`t use income tax and all it`s benefits EG offsetting expenses unless you set up a LTD CO to trade under.

This came from an accountant, BUT, not one that had ever dealt with a trader.

 

[Rognvald]

Spoon and MADF are right Forget the VAT reclaim - I went down that road - its a no go. A limited company may be best depending on amounts involved. If you are making those amounts then professional advice FROM A KNOWLDGEABLE PROFESSIONAL - not the accountant down the road- is surely worthwhile

 

[bonsai]

It is of little use using a run of the mill Accountant to advise on this.
Whoever you choose MUST have had practical experience of
winning your arguments with the Revenue.

Otherwise he is just guessing. It is not advisable to get off on the wrong foot with the Revenue.

Skim's idea of using a tax lawyer is good. Trouble is they may be hard to find. (Unless you belong to the same golf club).

 

[alliance]

www.taxationweb.com

Interesting website Kevin...tnx

 

[ruethewhirl]

This is going to sound dumb, but in the UK, is the first
£8000 you make per tax year on capital gains, tax free?

It's just that I'm from New Zealand, over here to work
for a bit, and our CGT rules are not so clear cut, to say
the least.

Also, what is the role of an ISA in all this? Do the CGs
you make that fall under tax-free status need to be
traded under an ISA (sorry if that doesn't make sense,
I'm literally a newborn in this place).

Any advice very well received.

 

[Racer]

ruethewhirl
You get a Capital Gains tax allowance each year for shares that are traded in normal accounts also on CFDs too. You can offset any losses you make though to minimise your tax due.
Spreadbetting is tax free, but you can't offset losses. (nothing to do with ISAs)
ISAs you can put cash or shares in these but it isn't a lot each year, also Capital gains free but no offset of losses. They are changing the rules all the time on these and making them less attractive.
Not sure how you would be treated for tax if you are only here for a short time.

 

[Racer]

See
CGT
http://www.inlandrevenue.gov.uk/rates/cgt.htm

ISAs
http://www.moneyweb.co.uk/products/investment/isa/isa.html

 

[ruethewhirl]

Racer,

Very informative. Thanks.

So, the race is now on to make that £8000....!

 

[Upper Canada]

Offshore Limited Companies

If you're goal was to limit taxes and liabilty why don't more self employed traders just setup a limited liability company in a tax haven country and pay themselves a salary/benefits from their profits???

Having a company can be more about writing off a couple computers why not limit your liability at the same time?