Forex Tax!

Ok! Maybe this is a bit of a specialist question but just looking for a vague idea to set me in the right direction rather than binding info. A guiding hand from all those who have gone before!

I’m a UK based forex trader currently full-time employed but looking to jack it all in to become a full time trader, don’t worry I know about the pitfalls and having back-up money and about how many people fail.

Speaking tax wise what is best? Would I be better off staying as an individual and paying capital gains on profits or would I be better off forming a company to trade within?

As I understand it, and correct me if I am wrong if anyone knows, but my company would be liable to pay corporation tax and then anything I withdrew from the company would be further subject to another ‘dividend tax’? Or would paying a defined salary be a better option? I intend to consult a professional prior to this however just looking for some starting info

Would anyone be aware of brokers – ECN ones – who allow you to set up accounts in company names as opposed to individuals.

Appreciate and advice and experiences given!

You would be best served, I think in this case anyway, by talking with someone who specializes in taxes in your country. There are an ungodly number of differences in the specific tax laws within each country, how the differences are calculated for companies over individuals, where the company’s “official” head office is, and just a mountain of other little details that they would either know or could find out for you a lot easier.

I know here in the U.S., due to the ludicrous amounts of over-regulation, many companies have chosen to move to another country as their base of operations, in large part due to the cost added to them doing business in the way of taxes.

Cheers for that buddy I am intending to see a professional and get all the finer details sorted out. Don’t wanna end up in hot water over this but just wondered if anyone here had any UK specific experience?

Forex taxation is a bit of a grey area in the UK.
In theory, and this is what HMRC and accountants will tell you, you should be liable for Capital Gains Tax. However, HMRC will not allow you to offset Forex losses against your tax, probably because they know what the failure rate is like. Because of this, a small number of traders have successfully argued that HMRC have no right to claim CGT from them.

Four ways to go.

First, as you are currently, trading is not primary source of income so trade via spreadbet and all gains/losses are outside of tax scope.

Second is as self employed person. trading primary source, so all profits/losses within scope of self assessment (would suggest this is your best start-up setup).

Third is via a corporate structure, i.e. Limited Liability (Ltd) company. Tax on profits are less that no.2 (corporation tax) and no, you would not effectively pay tax on dividends (long story, but the dividends would not be greater than profits)

Fourth is via a LLP, which is relatively new to UK but a mixture of number 2 and 3.

Bottom line is the simple way to go is declare self employment, ALL costs including broadband, telephone, paying someone to chart watch, rates on a home office, electricity, heating - anything that can be attributed to your existing as a trader can be costed from your trading profits - then your personal allowance - then pay your tax.

So you travelled to a trading seminar, you paid for a particular book/seminar/course, you paid for a babysitter so to attend, you required a particular suit, used your car, fuel - and so the list goes on - all costs to offset against profits when a self employed person.

CGT is applicable to share trading.

I do not know about the rest of the stuff, so will post a thought on the part of the post I left alone.

As far as the CGT, we have that here in the U.S. as well, but I want to talk about the business expense part more, because I had checked into that side of things as well. Here, you can claim expense on your tax return, but in the case of using home office (and phone etc.) is you can only claim the portion that you use for the home business. So, if you have a computer that all you use it for is trading, you can write the entire thing off, if you use it as your regular home computer, you can only use the % you use it for trading. Same thing with electricity, phone, office space, etc. But, the caveat is you also have to make money at it to be able to claim it. If you cannot make money at it within three years, the Infernal Revenue Service, last I read, considers it a hobby, and will not allow that tax write off to be claimed for anything.

Cheers for this mate, that was the way I thought it was going to be. One of the benefits of being self employed!

A quick question if you know though about the Corporation Tax/Dividends. How comes cash you pay yourself from the company in dividends is not subject to further tax?

Danny, the limited company can pay it’s shareholders dividends, but only out of profits.

Cameron takes the view that since tax is already paid on those profits then it’s unfair to tax the shareholder for deciding to pocket some of those profits. Mind you if you are a bigger earner then he will look for the difference.

JD, I blame you guys for the whole tax thing, whatever the US does and it works from a tax angle then we dutifully follow, hmmm… thinking about it I bet there are a few other countries checking out whether it worked in the US, if it did then they also follow, so how about you guys coming up with… a complete tax break for all citizens :slight_smile:

Hello Danny,

good thread - it has been posted before by others, but no reason why you should not ask again - and

our great Peterma has once again given precise and relevant answers!

I covered this topic on another thread a while ago, and found this great thread on another forum:

UK Taxation of Forex Profits - Page 2

Have a read of it and see what you think.

Cheers.

TBH, I blame us (the govt part of us, not the rest of us who completely disagree with their B.S.) too.

I think that many companies have stopped doing business in the U.S. because of the onerous taxes here (on the businesses AND on the citizens), and have gone elsewhere. Me personally, I am for a much lower flat tax, with very few loopholes. Loopholes that the elected officials like to keep blaming for all the problems, and then do absolutely nothing about them.

Selfemployed status and taxes on capital gains. You can write off losses and operating costs like commissions, working space, electricity, internet connection, even news services that you may be paying for.