Day Trading and UK Tax

UK tax law is written over thousands of pages detailing what individuals must do to comply. However, within these thousands of pages of tax law there is no definitive answer as to how a day trader should tax the profits derived from day trading.

The challenging and rewarding activity of day trading also gives rise to challenging questions about how to tax the profits a day trader makes from day trading.

The only way to get a definitive answer as to how your day trading activities should be taxed is to ask HMRC to review your specific circumstances and confirm the tax treatment of your day trading profits. Decipher Tax advisers are experts in interpreting HMRC guidance and case law in this area of taxation. We are skilled at presenting our clients’ day trading activities to HMRC and obtaining written agreement from HMRC as to the tax treatment of our clients’ day trading profits. HMRC will then either provide clearance confirming that day trading profits are not taxable, or advise that a client’s day trading activities are taxable under either the business tax rules or the capital gains tax regime.

Each day trader’s trading activities are individual and specific to them. Whilst one day trader trading FOREX will be given clearance by HMRC confirming that their day trading profits are not taxable; another day trader trading FOREX may be deemed by HMRC to be carrying on a self-employed business, which is taxable. The classification of a day trader’s activities has just as much to do with how the day trader approaches his/her day trading activities as it does with the specific financial instrument being traded. The financial instrument being traded, be that FOREX, shares, Bitcoin or another financial instrument, is only one aspect of determining a day trader’s tax status.

If you come to us as a client, we will gain a detailed understanding of how you approach your day trading activities and carry out tax technical research of HMRC guidance and tax case law in this area. We will then write to HMRC requesting that they confirm your tax status as a day trader. HMRC will respond confirming that your tax status is one of the following:

  • speculative in nature and similar to gambling activities. This would mean that the profits made from day trading are not taxable and are free of income tax, business tax and capital gains tax
  • the carrying on of a self-employed trading activity, in the same way any individual carrying on a business activity is self-employed and”trading”. Self-employed individuals are liable to business tax, or
  • the undertakings of a private investor, where gains and losses are dealt with under the capital gains tax regime

Given that day trading changes rapidly, this could also mean that a particular day trader could fall into more than one of these three categories over the course of a few years.

Decipher Tax is a pioneer in this area of taxation and offers a specialist tax consultancy service for the day trader who is looking to understand how they should report their day trading profits to HMRC. Our clients are then clear about how HMRC views their trading activities in the context of the UK tax system.