Posted on: 23rd February 2018

Day Trading But Not “Trading”

The term “day trader” is misleading in the context of the tax rules. The mere fact that the term “trader” is in a job title doesn’t mean that someone is carrying on a trade as perceived by HMRC.

So, what does HMRC think you’re doing when you’ve spent hours studying candlestick charts, observing the markets and accurately predicting market movements to make a profit from day trading? You might think that by not considering day trading to be the carrying on of a trade that HMRC don’t view the work you are doing as a valid activity. This is not the case. HMRC do consider day trading to be a valid activity and one that more and more people are becoming involved in. It’s just that day trading poses a number of questions as to how profits from this activity should be taxed.

If you’re a day trader how do you know whether HMRC consider your day trading activities to be the carrying on of a trade; in the same way that any other self-employed individual undertaking a business venture is carrying on a trade? Unfortunately, a clear set of rules does not exist in this area of taxation. The only way to determine whether a day trader is carrying on a trade is to review HMRC’s Business Income Manual and the Badges of Trade to determine whether the way in which the trader carries out his/her day trading activities will be considered a self-employed business activity in the eyes of HMRC.

What if your day trading activities don’t amount to the carrying on of a trade?

If the Badges of Trade indicate that your day trading activities aren’t that of a self-employed individual, then your day trading profits or gains will either be classed as being:

liable to Capital Gains Tax where your trading activities are that of a private investor

or

similar to gambling receipts and not taxable

You can read more in our Capital Gains Tax and day trading and gambling factsheets.