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Sam
Sam, Accountant
Category: Tax
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I have a question that I hope someone can help me with. Recently

Resolved Question:

I have a question that I hope someone can help me with.
Recently I received a tax invoice from HMRC for back taxes dating from 2009-2012 due to a tax avoidance scheme I used.
For the period of 2009-2012, I was day trading CFDs for Foreign exchange and commodities such as Gold and Oil, as well as being involved in my normal job.
I have a full audit of my trading activities with dates, time and trade volumes.
The trading activities exceeded 20 hours a week, so I was actively trading.
The trades were made on my own account and were executed by me personally.
The losses incurred for CFD trading during the period exceeds the amount of taxes HMRC are asking for.
The question is, can I offset the trading losses against tax from a different source?
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi
Thanks for your question
Is the day trading the money which is linked with the tax avoidance scheme, or is this a different source of income, as you do not advise.
If not, then please advise what source of income you used within the tax avoidance scheme
Thanks
Sam
Customer: replied 2 years ago.
Hi Sam,I had a normal day job which was paid using the tax avoidance scheme. The trading was done in parallel with the day job.
Customer: replied 2 years ago.
I was working as an IT contractor which paid me via tax avoidance scheme.. The day trading was done in parallel.
Expert:  Sam replied 2 years ago.
Hi
Thanks for your response
Ahh I see - thanks then I am afraid the answer is no, as day trading for yourself is not considered a trade - due to the fact you can make losses as well as gains as falls under the remit of gambling rather than trading.
The only time HMRC would consider this as trading is if you traded with others money (so acted as agent) OR if this was your sole income and your only source of income (even then its rare for it to be treated as income is by yourself for yourself)
I am sorry to not be able to offer more favourable news
Let me know if I can be of any further assistance
Thanks
Sam
Customer: replied 2 years ago.
Hi Sam,
The trading account is not a spread betting account, but a CFD one, where any profits are subject to capital gains tax.
Customer: replied 2 years ago.
I found this on a tax website.:
Losses on any trading activity (financial or non-financial trade) would generally be offset against other income of the same year or carried back up to 1 year (extended to three years for most of 2009).However a person who incurs a trading loss and claims relief under the general income tax provisions (ie against other income) but who does not have enough income to offset that loss in full, can make a claim to have the excess treated as a capital loss. This will then be offset against the capital gains in the year.So trading losses can be offset against gains but to the extent that there is no other income and if a claim is made.Note that new provisions mean that if the trade is a 'non active' trade your loss relief would be limited to £25,000 per year (ie you could only offset £25,000 of the trading loss against any trading profits & the capital gain).You'll be classed as carrying out a trade in a non-active capacity if you don't spend, on average, at least 10 hours a week personally engaged in activities of the trade. Those activities must be carried on:on a commercial basis and
with a view to the realisation of profits as a result of those activities.
Expert:  Sam replied 2 years ago.
Hi
Thanks for your response
They are treated the same as spread betting from HMRCs viewpoint IF the transactions are carried out on the same day(so day trading) if you hold onto the purchases of shares and units for some time, then sell at a later date (and have each transaction listed both at time of sale and purchase) then I agree there is an element of capital gain consideration to be upheld.
However even if they are liable to capital gains tax and subject to capital gains you cannot offset capital gains losses against taxed earned income.
The losses could only ever be offset against gains made in that year OR carried forward to offset against future gains.
So again I am afraid this is NOT a viable option for you.
Thanks
Sam
Customer: replied 2 years ago.
Hi Sam,This seems to go against the information from http://www.traderstaxclub.co.ukLosses on any trading activity (financial or non-financial trade) would generally be offset against other income of the same year or carried back up to 1 year (extended to three years for most of 2009)The losses incurred were spread over the same period as HMRC are assessing.I am a little confused :(
Expert:  Sam replied 2 years ago.
Hi
I can only advise the correct legislation from HMRC - which I am sure you can appreciate and traderstaxclub will tell you want you want to hear rather than the facts I am sorry to say as they are mixing up the treatment of this income between trade income and capital gains (which are two completely different regimes of taxes)
This is NEVER going to be treated as trade income wnd this is the inly time when you can then offset trade losses against other earned income, this is income from which capital gains is the tax regime followed, which only allows it to be offset against gains made (under the capital gains) in the same year OR carried forward to offset against future capital gains.
Link here re offsetting capital losses from HMRC/gov/uk website which is the genuine and accurate advise
https://www.gov.uk/capital-gains-tax/losses
Thanks
Sam
Customer: replied 2 years ago.
Hi Sam,Apologies for being a pain and thanks for your patience :)If I was trading profitably and it provided a regular income, would I be subject to Income tax? or just capital gains on the profits?
Expert:  Sam replied 2 years ago.
Hi
You are not being a pain at all, and I can fully understand your confusion.
NO - as this type of income is only ever trade income when
1) you act as agent for others or
2) Its your sole source of income (but this is rare)
Advise initially when you asked after the tax position.
The fact you may or may not be profitable or that its a regular income has no bearing at all. Its just not trade income unless you offer it to customers (so run as a business so to speak)
Let me know if I can be of any further assistance - as I am happy to help further if needed, but it would be appreciated of you could rate the level of service I have provided, as this ensures that Just Answer credit me for my time.
Thanks
Sam
Customer: replied 2 years ago.
Hi Sam
Am I able to ask more questions on the same topic once I have rated you?RegardsHonto
Expert:  Sam replied 2 years ago.
Hi Honto
Thanks - yes you are - if a new topic of its for additional advsie over and above that which had been indicated, then a new question should be asked
Thanks
Sam
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