Best Thread Capital Spreads

[Roberto]

Yes, the tax business is a grey area indeed.

I've discussed it over the last couple of years with two specialist accountants and two tax inspectors and am only a little better informed now than I was before that!

My impressions are:- ...

If you back horses _for a living_ the taxman will _certainly_ want income tax from you; there's no possible question about this and many cases to read up on the subject.

If you earn £20,000 working in some "ordinary job" and earn another £100,000 from spread-betting (unlikely, but for argument's sake!), the tax man would probably have _great_ difficulty getting any tax income from you at all on the spread-betting winnings, and probably such great difficulty that in practice he wouldn't try.

But if you didn't declare and pay income tax on the £20,000 it would be a whole different ball-game, because the spread-betting income would be your only income. In other words, it's not the relative _sizes_ of each source of income that matters; it's the fact that you have to be seen to be "earning a living" (which probably means something close-ish to the average national wage, or certainly at least the minimum wage) very officially and paying income tax on it for your additional spread-bet income _necessarily_ to be tax-free.

In other words, the blanket statements one so often sees about spread-bet income being tax-free are quite some oversimplification, although so far in practice they have probably been for almost everyone. At some future point, there _will_ be a test-case on this: it's inevitable.

Of course, if you were earning enough from it, you could set yourself up with a nice little offshore company through a Guernsey accountant and pay yourself a nominal salary on which you pay some UK income tax. That would be what I'd want to try, anyway.

 

[DT]

I'd be surprised if this is not a major issue for the spreadbetting firms. All of them seem to advertise very heavily the 'fact' that all profits are tax free - if a large enough portion of their profitable clients started facing tax bills for their spread betting profits then not only would they potentially be leaving themselves open to possible legal cases re: false advertising but also there would no longer be any point in utilising spreadbetting firms for the purposes of longer term position trades etc.. the only customers left would be £1 per point punters who can't afford to trade anywhere else.

If the inland revenue does tax successful spread betters I'd expect that the spread betting firms would want to fight against it as much as possible as surely their very existence relies on the 'tax free profits' .

 

[kevin546]

Roberto

What is the definition of an income, for example do you need to physically be employed or is it the fact you receive an income such as a monthly or annual pension.

If you do become subject to income tax as your only or main source of income would you be able to off-set costs such as Internet, real time charting, research oh and losses as part of your ongoing professional costs.

At least you can off-set losses against capital gains tax if you trade futures etc.

Kevin

 

[kevin546]

Dave

I appreciate your points and SB's are technically correct because previously you would have been subject to gaming tax, but they cover that themselves on behalf of the client. Unless I am mistaken SB never claim they are free from Income Tax they only say Tax and if you press them on this they (at least the one's I have spoken to there manner changes from friendly and helpful to very uneasy and suggest that you seek professional financial advice). A trader or SB who is seen as someone not approaching the SB in a professional manner would probably be treated as a casual gambler and not become subject to an Inland Revenue investigation. But if it is your only source of income and by the very nature of your trading is not casual then YOU MIGHT have a tax liability. That's the problem 'might' its not in stone and it would seem each case is taken on its own merits.

Kevin

 

[stevet]

yep - does anyone think the tax man is their friend or a charity - he dont tax profits on spreabetting - because there aint no one making a profit from spreadbetting

the day i hear of someone getting hit for tax from spreadbetting is the day i will take a look at spreadbetting - ok - some lucky **** might have got a hit from the tax man - make that two people getting hit for tax and i will take a look!

 

[JonP]

Simon,

Do Capital Spreads quote prices on Traded Options? Am interested in trading both the FTSE100 index and FTSE100 stocks.

JP

 

[axthree]

Oh dear, Sevet's off again.

 

[kevin546]

Stevet

I see you have formed a strong opinion on this subject. But how can you say that no SB makes a profit. Now I know you will say the spreads are bad and there are other problems to overcome with SB. But there must be active swing traders using the SB's to take a short term positional trade where the spread will not hurt them so much. If they are prepared to sit and wait for the appropriate signal, trade knowing the games that can be played by SB's and allow for it I cannot see how there are not some successful SB traders. It is another question if more traders go for share dealing, futures or CFD's because they offer better value. But to say no one makes a profit IMHO maybe taking it a bit far. Certainly it is harder to be a success because of shall we say the trading mechanics forced on you by the SB's tactics and it is certainly harder to day trade with them, but not impossible just rather hedged against the trader.

Kevin

 

[Roberto]

Roberto

What is the definition of an income, for example do you need to physically be employed or is it the fact you receive an income such as a monthly or annual pension.

If you do become subject to income tax as your only or main source of income would you be able to off-set costs such as Internet, real time charting, research oh and losses as part of your ongoing professional costs.

At least you can off-set losses against capital gains tax if you trade futures etc.

Kevin

I'm no expert on this, Kevin. I'm not even a qualified accountant, I'm just sufficiently interested in the subject to have discussed it with some people who know a lot more about it than I do.

I don't think you need to be physically employed; I think it's the fact that you have something else that you can choose to classify (even if it's small) as your "main income". One accountant when explaining this to me likened it to the principle of "designating" one property as your main property, regardless of their respective values, for the purpose of avoiding CGT on its sale. I feel _sure_ that in the event of being unlucky enough to end up getting taxed on spread-bet profits, one would be able to claim _many_ things as off-set.

I don't see this as an "immediately pending dispute" with the Revenue for anyone at the moment; but it's certainly a "grey area", as observed above.

I agree with your other points made above, Kevin.

It's clearly nonsense to allege, as someone else did above, that nobody makes consistent profits from spread-betting. Several people do who have posted on this site at various times, and many more besides: if you'll excuse me, I'm not using up my time debating this one!

What matters is whether anyone's making enough, and consistently enough, without having any other declarable income at all, for a tax inspector to want to try to make a name for himself with some sort of test-case. I don't imagine this is imminent. All I'm saying is that equally we should not all imagine that it's written in stone that nobody will ever have to pay tax on SB profits.

 

[kevin546]

Roberto

Thank you for the reply. I prefer to be prepared and will obviously need to cover this issue with a qualified tax accountant. Anyone who is uncertain should seek financial advice and maybe keep 40% of winnings to one side just in case, especially if this is your only form of income.

I have had several debates on this and it is always never clear what may apply but all seem to have formed the opinion based on advice that if trader without another form of income then there is more of a chance that the Tax maybe interested in you for your Income.

All the best

Kevin

 

[capitalspreads]

Tax issue...

to be frank the tax issue is not one that we really push that hard as it is slightly ancillary to the product as a whole. I have yet to hear of anyone who has been taxed on their SB winnings but that might be because I havn't been listening hard enuf !! I do know of several clients who had to prove to the authorities that their income came from SB . Once they did so the IRS accepted it.

Steve I know of of at least seven units that have to pay tax on SB earnings. IG, City, Cantor, D4F, Spreadex ,Finspreads and Capital Spreads. You will find an application form on www.capitalspreads.com . But maybe that wasnt what you meant.

good luck everyone

Simon

 

[stevespray]

Afternoon people…….

So the subject of taxation on spreadbet winnings is again up for discussion. Can I first point out that there are several in depth threads covering this subject already posted. The comments on those threads are as varied as those here.

I personally make money each year from spread betting the financial markets and due to this I felt it necessary to investigate the subject further.

I have personally spoken to three different tax inspectors on this and associated issues. I will attempt to post the basic outline of what I have established.

1. The Inland Revenue do from time to time class certain people as ‘professional gambler’. This is a major problem for anyone who derives an ‘earning’ from betting of any kind because this essentially means that the IR can tax what the law terms as ‘winnings’ as apposed to ‘earnings’. I would suggest that any spreadbetting company which advertises “All winnings are Tax free” is taking a risk. It appears that all spreadbet wins are free of capital gains tax but not income tax and therefore to use the words ‘Tax free’ implies all taxes.

2. The IR may use a number of methods to determine if your ‘winnings’ should be subject to Income Tax. The main way appears to be what they call ‘subsistence allowance’. Basically everyone needs an element of income in order to subsist or survive. If the IR thinks that you don’t earn enough, through your taxable income / pension / savings, to survive on (ie mortgage, bills, food & entertainment) then they may well look further into your sources of income. If they then find another sizeable source of money they may deem such a source as ‘professional’. I am in no way qualified to give advice but my own perception is that it would be sensible to maintain an income, which you pay tax on, which would reasonably cover your day to day living expenses. This way it would be far easier for you to claim that your spreadbet income was derived from ‘speculation on financial markets’ rather than ‘trading’.

3. Similar businesses. People have suggested that SB winnings are tax free regardless of anything else. I don’t believe this to be correct. It is widely acknowledged in the accountancy business that the IR will regard earnings from similar lines of business as earnings from the same source. This is also true of VAT. If you have two separate business which involve themselves in similar activities then you will have a problem persuading the tax authorities that they are separate for any other reason than to avoid taxation. Therefore, if you are a professional trader who clearly has several screens / charting packages / mulitpal brokerage accounts etc, you are going to struggle to persuade the IR that your spreadbetting activities are anything more than tax avoidance.

4. Systematic approach. When does a ‘hobby’ become a ‘living’ ? I would claim that my winnings from spreadbetting where the results of my main ‘hobby’. I clearly run another company which has no direct link with financial speculation of any nature and I deem this to be my living. I do however take my hobby quite seriously and invest a percentage of my winnings into computers / screens / software. With this in mind (and speaking ‘off the record’) a tax inspector has informed me that they could use the fact that you maintain a professional approach as a weapon against you. Apparently the fact that you might have several computers all dedicated to the same thing my prove that your dealings are considerably more than a ‘hobby’.

5. One of the tax inspectors has informed me that it would be rather unlikely for the IR to suddenly back date demands for tax if your earnings were from spreadbetting. He stated that a more likely course of action would be to warn you that, in future, they would be assessing your dealings from your ‘professional gambling’ for tax liability. Obviously if this is true then nobody need worry in the short term about monies earned, in the past, from spreadbetting. The is one however. If people have left full time gainful employment it sometimes takes the IR several years to gain knowledge of some ones new ‘occupation’. The IR normally notice after a year or so that you have stopped paying any direct tax. This then triggers a series of questions from the IR regarding your income sources. If at that time they then go on to deem that you left your gainful employment to seek income as a profession gambler they may well back date tax liability in just the same way as they would if you were late registering for self employed.

My own personal conclusion which allows me to sleep soundly at night without needing to worry. I have a full time income from my own business which I personally manage. This income has no connections to the financial markets. My winnings from spreadbetting are purely the results of speculation which is my hobby.

Hope this helps,
Steve.

 

[kevin546]

Steve

Thank you for taking the trouble to post all of this. It would seem then that unless you have a separate income and do not have a thorough or professional approach or resources to SB then you maybe in the clear. In the event that you are liable to income tax because you either do not have a separate income or you are seen to trade from a professional approach rather than a hobby, what benefits could SB have over say trading something like futures. If charged tax would you be able to off set any loss or costs with SB as I believe you can when trading conventionally (shares, futures & CFD's).

Kevin

 

[Roberto]

One of the tax inspectors has informed me that it would be rather unlikely for the IR to suddenly back date demands for tax if your earnings were from spreadbetting. He stated that a more likely course of action would be to warn you that, in future, they would be assessing your dealings from your ‘professional gambling’ for tax liability. Obviously if this is true then nobody need worry in the short term about monies earned, in the past, from spreadbetting. The is one however. If people have left full time gainful employment it sometimes takes the IR several years to gain knowledge of some ones new ‘occupation’. The IR normally notice after a year or so that you have stopped paying any direct tax. This then triggers a series of questions from the IR regarding your income sources. If at that time they then go on to deem that you left your gainful employment to seek income as a profession gambler they may well back date tax liability in just the same way as they would if you were late registering for self employed.
Steve.

Same here, also. I've been told exactly this by an Inspector of Taxes (and for the moment I'm in a similar position to you anyway).

Roberto

 

[stevespray]

Kev - I'd assume that your activities, if deemed professional, would be looked at in exactly the same way as any other business where you were a 'sole trader'. By law you would be 'self employed' unless you set up a company and paid your self a wage. On this basis you would have your accountant draw up a profit and loss sheet every year. This would reveal your net earnings and this would be entered directly onto your self assesment form for self employed. Your accountant or IR would then calculate your tax liability in the normal way and this would be payable in two halves at the the end of Jan and July.

Steve.

 

[kevin546]

Steve

Yet again thank you, so it would seem that if you are to become 'sole trader' status (as I do not see how I can avoid this in a couple of years when my present employment comes to an end and I get a pension) there are no additional tax benefits from direct access trading to that of SB except for better prices and quicker fills when trader through direct access. All other costs would be business costs.

Kevin

 

[stevespray]

Kev - It's interesting that you mention a pension there. If this is so you would have the another defence from the IR. If your pension provided you with subsistance (paied your general costs of living) then you could reasonably claim that your employment status was 'retired'. You can of course be retaired and also persue a hobby. I would suggest (and again I must stress that I am not qualified to say so) that if you were drawing a pension the IR would be aware of this and therefore they would be very unlikely to come looking for anything else with regards to income tax.

Steve.

 

[kevin546]

Steve

I do intend to look into this because although I am not yet able to trade as regularly as I would like due to work, it is reasonable that any tax that I become liable for could mount up. The pension does provide some cover but one would also have to consider the manner in which I may trade when retired. I think it would be considered more than a hobby. The 'retired status' would also need to be verified because although I would no longer be in a job I would be well under the present retirement age.

I suppose if I can avoid sole trader status fine but if not then I need to consider the best value trading instrument.

Kevin

 

[capitalspreads]

Steve has given a very well thought out and thorough analysis of the SB tax situation. Most (nearly all) SB users are not in the situation of being considered fulltime professional gamblers , and it is probably not worth the IR's time and resources to find and tax the few who are (although that is just a guesstimate). Even the big winners generally have some other form of income which would mean that they could claim that they are merely part time punters.

But of course all things can change.

Simon

 

[gullible]

A betting levy is paid at source, therefore all gambling profits are tax free. Revenue can not say that just because soembody has had good fortune to have gambling wins they want a share of it. Oh I see, in their calculations they will give the punter a notional credit for betting levy paid at source. I also see revenue saying sorry punter any gambling losses incurred in the past 6 yrs are not allowable.