Day Trading but not “trading”

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 worry 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 obtain HMRC approval as to the correct tax treatment of your day trading profits.

Day trader tax is an area of tax that causes much confusion. By researching decisions from tax cases between taxpayers and HMRC, in conjuction with HMRC guidance, your Decipher Tax adviser will interpret your particular circumstances. We will then identify whether HMRC are likely to decide that your day trading activities amount to the carrying on of a trade, liable to business tax.

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

If it apparent to us from our research that your day trading activities will not be viewed by HMRC as a self employed trading activity, then we would determine that your day trading profit is either:
similar to gambling receipts and not taxable​


liable to capital gains tax where your trading activities are that of a private investor

Our consultancy services don’t end when our research is complete. Our interpretation of your day trading activities will be presented to you in the form of a letter for your approval. This letter will then be sent to HMRC for their assessment and confirmation of the tax treatment of your day trading profits. Once confirmed, you will have HMRC’s decision, in writing, of how your day trading profits should be reported on your tax return. Provided the way in which you day trade remains the same, the tax treatment of your day trading profits will remain unchanged.

For a no obligation discussion request a callback from your Decipher Tax adviser