Can anyone tell me how to become recognised by the tax office as a day trader?
I've googled, etc, but to no avail and I can't find any info anywhere.
I'm wondering what criteria has to be satisfied in order to be able to register as a day trader.
Also, does anyone know what tax levels would then apply?
Thanks. Harry.

Harry,

This is a very difficult area made more complicated by subjective and inconsistent decisions by various local tax offices who often don't really understand what we do. Also, I doubt there's any distinction made between 'trading' and 'day trading', although arguably the latter carries even worse psychological baggage than the former. As for 'registering' as a trader - I'm not quite sure where you're going with this. At some point it may be recognised as what you do but you don't need anyone's permission to start.

I think most traders would prefer to pay Capital Gains Tax while HMRC would much prefer to charge income tax and this is one of the points that can get quite complicated. Generally, it's accepted that equity and CFD gains are subject to to CGT, but if it's your main source of income, they might try to impose income tax on you.

Also, there's the question of what you're trading. If its spread bets, there's no tax on this activity with the caveat that they might retrospectively try to apply it one day, and you don't have to tell HMRC anything, except if it's your main activity - in which case maybe you do and maybe it's regarded as a job with a taxable income. If all this sounds rather woolly it's because it really is a minefield.

If you're a subscriber, there's a good thread in the Traders' Room on these issues here:

Minimising the tax burden for full-time traders

This newspaper article may be of interest:

Taxman faces new criticism on active traders

This site may be of some help:

Tax Cafe

And this is the accountancy company which quite a few of the traders on MoneyAM use:

Trio tax for financial traders

Everyone's circumstances are different and if you're getting into this seriously you'll almost certainly want to take professional advice, probably from Trio because your local accountant won't have a clue. I know of someone who used a local accountant who checked things with the local tax office, got bad info, ending up in a disputed tax filing which led to an investigation. Moral of the story - find a real trading tax expert.

Kyoto, thanks very much for your help. Much appreciated. With both higher income tax and CGT bands taking a 40% cut, am left wondering if there is any advantage to being regarded as Sole Trader ??

It's not a given that CGT would be 40%, as the rate of CGT is dependent on your income. If your profits were taxed under CGT because your tax office decided they didn't regard what you did as 'employment' then what income would you have that would push you into the highest CGT bracket? In reality this might not be likely but it comes down to individual circumstances and which way the wind is blowing at the local tax office when they make decisions.

I'm not very familiar with the ins and outs of being a sole trader but I've spent several years as a company director and I'm aware that some traders go down the route of trading through their own limited company. One of the advantages of being set up in this way are the ability to offset certain costs against tax which are not possible as an individual. But you would have to find accounts that can support the type of legal entity you are trading through, and another downside is that administering a company, even one which doesn't have offices and other employees, can be extremely time-consuming and frustrating because of the enormous amount of red-tape which exists - and as HMRC are fond of reminding everyone "ignorance is not an excuse" - except of course, when it applies to them.