Our Consultancy Work
The tax consultancy work Decipher Tax carries out for its clients is centred around researching HMRC guidance together with tax case law and applying this research to the specific circumstances of each of our clients. The tax case law we refer to in our research are tax cases where the taxpayer and HMRC have gone to court over a disagreement about the tax treatment of the taxpayer’s profits or losses. There are also certain tax cases we refer to where the taxpayer is specifically involved in activities similar to those a day trader might engage in.
The taxpayer with employment income and perhaps some savings income can prepare his/her tax return without too much trouble. By virtue of the fact that the taxpayer is employed, he/she will know that this is employment income and know exactly where on the tax return to input this income. The average self-employed individual, whether the butcher, the baker or the candlestick maker, knowing that he/she is carrying on a trade will also be clear about his/her tax status. This is given that all the obvious aspects of a trading activity will be apparent such as having premises, stock and customers. The self-employed butcher will also be clear about where to include profits or losses on his/her tax return. Not so straightforward for the day trader.
A day trader could be classed as being self-employed and carrying on a trading activity, in the same way any other self-employed individual undertaking a business activity is trading. However, as the day trader generally won’t have premises or customers, or other obvious attributes of someone carrying on a self-employed business activity, the day trader may not be aware that in the eyes of HMRC he/she is carrying on a trade. The day trader will then not realise that he/she is liable to income tax on profits and able to obtain relief for losses as a business loss.
However, not all day traders will be considered by HMRC to be carrying on a self-employed trading activity. Even if the day trader spends most of his time day trading and makes a living from it, it can’t be assumed that he/she will be classed as a self-employed day trader by HMRC. If not a self-employed trader, then the day trader will be classed as either a private investor, subject to Capital Gains Tax, or be considered to be carrying on an activity similar to gambling. The research we do at Decipher Tax will determine which of the three categories our client’s day trading activities fall into. All our research will then be presented to our client in a detailed report highlighting all references from HMRC guidance manuals and tax case law. Our client can then be confident that their circumstances have been reviewed against prevailing HMRC guidance to confirm whether they are liable to Capital Gains Tax or Income Tax. If there is a case for our client’s day trading activities to be considered as speculative in nature, similar to gambling and not taxable, then this will be discussed further with our client. We will then decide whether a clearance application should be made to ascertain whether HMRC agree that the client’s day trading profits are not taxable.
We don’t number crunch at Decipher Tax. Whilst we will need to understand the extent of your day trading profits in the context of any other income streams you may have, we won’t need our clients to hand over all their financial information, bank statements and the like. The consultancy work we undertake is in interpreting HMRC guidance and tax case law in consideration of your specific circumstances and determining your tax status; whether this is as a self-employed trader, a private investor or whether your profits are not taxable. It might surprise you to know that there isn’t a particular profit threshold at which HMRC will demand tax. The amount of profits made are a consideration in determining a day trader’s tax status but there are many other aspects of a day trader’s activities that need to be considered. Some of these aspects include (but are not limited to):
- whether you treat your day trading activities as an occupation;
- whether your day trading profits are your only source of income;
- how many hours you spend day trading;
- the frequency of transactions
- the length of time between opening and closing a position; and many other factors besides.
Once we have reviewed your individual approach to day trading and confirmed whether you’re self-employed or a private investor you will be in a position to accurately report your profits and losses on your tax return.
Decipher Tax is a tax consultancy focusing on the technical aspects of tax legislation and tax case law. In order to provide our clients with the highest quality of service we don’t spread ourselves too thin and provide advice in all areas of tax, or prepare tax returns. Rather, we specialise in advising on the tax implications surrounding day trading activities. We believe that this is what gives us our edge and we hope that you will try our service and like what we have to offer.