Tax implications on futures trading

Futures29

Hi everyone,

Thanks in advance to everyone who will post a constructive and helpful answer to this post.

I am looking at becoming a full-time futures trader within the next 18-24 months. Only following a rigorous process of simulation and risk- management.

Could anyone tell me how I can be as tax efficient as possible? I am not seeking to become abhorrently wealthy but would like to ensure that on a 6 figure income I am able to maximise pension contributions whilst still paying my fair share of tax.

What are tax implication? Do I need to register as a LTD company? These are just guiding queries I have.

Once again, thanks in advance to anyone taking time out their day to help.

Voyager2002

A six-figure income? You are more likely to trade at a loss, in which case you would not need to worry about tax.

Futures29

Voyager2002 said:

A six-figure income? You are more likely to trade at a loss, in which case you would not need to worry about tax.

80% of people lose money, I'm aware. This however was not the question I asked

Jeremy535897

This is an area that has been considered in detail by HMRC, and I would refer you to their manuals:
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg56004 et seq
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim56800

DoctorStrange

Ok, so it's highly unlikely you're going to achieve your objectives.

As I'm sure you already know, you'd be far more likely to make a profit by investing sensibly rather than go up against professional Wall Street traders, hedge funds and global investment banks. I'd wager you're almost certain to lose money in this venture, but in fairness you won't be the first nor last to do so.

Good luck to you with it - even if you fail, you'll learn from it and God loves a trier so, if you are definitely set on this path, I'd consider the following: 

1) Set up a limited company
It doesn't cost that much, it'll add a veneer of professionalism and, most importantly, it segregates "your money" from "the company's money". (This part is actually critical - too many people ignore the distinction and wind up confusing the two, treating the company account as just another current account. Avoid this from the start by ensuring you "wear three hats" i.e. know when you're a private individual, when you're a Company Director and when you're a Professional Trader)

Ensure the company has a proper name and SIC code - this may prevent issues with HMRC later if they ever check your "trading" versus "investment" credentials.

2) Set up a company bank account 
Once YourCo is up and running, open a bank account in it's name, ensuring the bank knows it's a high-risk trading company. You'll unlikely to be able to access credit, but that's ok given you won't need any as you can fund everything from your profits. 

3) Seed your investment capital
You, as a private individual, can loan your company money to get it started. You can even charge your company interest, which is Corp Tax deductible and taxable for your as an individual.

4) Employ your first trader
As Company Director you'll have certain responsibilities by default. However, you may also wish to consider an employment contract between YourCo and yourself as a Professional Trader. This ensures that it's clear which capacity you're working in for each activity. You'll need to pay yourself NMW, which is deductible from your profits.

5) Trade on paper first
Now YourCo is funded, you should begin trading but I'd recommend you continue paper trading, in the companies name, to prove out your strategies and start to create an audit trail. Again, this may help with future HMRC audits so be sure to log all paperwork professionally e.g. strategy name, why you've chosen it, expected entry and exit points, risk mitigants, ongoing analyses etc. Basically, you're looking to prove you're a professional trader here rather than an ordinary Joe following WallStreetBets or YouTube finfluencers.

6) Trade
Once you're ready to make money, open a real money account in the company's name and start trading, logging the same audit trails as before. 

7) Hire an accountant 
With the profits now building up, you'll want to have professional advice on how best to account for everything. The costs of this are deductible, and they'll be able to advise the most efficient methods of repaying the loan from YourCo to yourself, and you can decide on the optimal remuneration package for yourself as the employee (i.e. whether you wish to use Company contributions into a pension, pay yourself a salary or bonus, let the funds accumulate etc).

They'll also be able to help ensure the correct taxes are paid, any that you have all the correct paperwork etc. Depending on your engagement with them, that may also help with your personal taxes as well. 

8) File your returns
With your accountants help, file all the necessary paperwork with HMRC and pay the taxes due. This should be done as quickly as professionally as possible - you honestly don't want any HMRC investigations whatsoever.



Throughout all of this, it should go without saying that you should keep your day job active, treat this as a side hustle until it's consistently generating your 6 figure profits and only invest what you are happy to lose. If you'd be unhappy to gamble/lose that same amount on sport, lotto or whatever then consider lowering the seed capital.

Futures29

DoctorStrange said:

Ok, so it's highly unlikely you're going to achieve your objectives.

As I'm sure you already know, you'd be far more likely to make a profit by investing sensibly rather than go up against professional Wall Street traders, hedge funds and global investment banks. I'd wager you're almost certain to lose money in this venture, but in fairness you won't be the first nor last to do so.

Good luck to you with it - even if you fail, you'll learn from it and God loves a trier so, if you are definitely set on this path, I'd consider the following: 

1) Set up a limited company
It doesn't cost that much, it'll add a veneer of professionalism and, most importantly, it segregates "your money" from "the company's money". (This part is actually critical - too many people ignore the distinction and wind up confusing the two, treating the company account as just another current account. Avoid this from the start by ensuring you "wear three hats" i.e. know when you're a private individual, when you're a Company Director and when you're a Professional Trader)

Ensure the company has a proper name and SIC code - this may prevent issues with HMRC later if they ever check your "trading" versus "investment" credentials.

2) Set up a company bank account 
Once YourCo is up and running, open a bank account in it's name, ensuring the bank knows it's a high-risk trading company. You'll unlikely to be able to access credit, but that's ok given you won't need any as you can fund everything from your profits. 

3) Seed your investment capital
You, as a private individual, can loan your company money to get it started. You can even charge your company interest, which is Corp Tax deductible and taxable for your as an individual.

4) Employ your first trader
As Company Director you'll have certain responsibilities by default. However, you may also wish to consider an employment contract between YourCo and yourself as a Professional Trader. This ensures that it's clear which capacity you're working in for each activity. You'll need to pay yourself NMW, which is deductible from your profits.

5) Trade on paper first
Now YourCo is funded, you should begin trading but I'd recommend you continue paper trading, in the companies name, to prove out your strategies and start to create an audit trail. Again, this may help with future HMRC audits so be sure to log all paperwork professionally e.g. strategy name, why you've chosen it, expected entry and exit points, risk mitigants, ongoing analyses etc. Basically, you're looking to prove you're a professional trader here rather than an ordinary Joe following WallStreetBets or YouTube finfluencers.

6) Trade
Once you're ready to make money, open a real money account in the company's name and start trading, logging the same audit trails as before. 

7) Hire an accountant 
With the profits now building up, you'll want to have professional advice on how best to account for everything. The costs of this are deductible, and they'll be able to advise the most efficient methods of repaying the loan from YourCo to yourself, and you can decide on the optimal remuneration package for yourself as the employee (i.e. whether you wish to use Company contributions into a pension, pay yourself a salary or bonus, let the funds accumulate etc).

They'll also be able to help ensure the correct taxes are paid, any that you have all the correct paperwork etc. Depending on your engagement with them, that may also help with your personal taxes as well. 

8) File your returns
With your accountants help, file all the necessary paperwork with HMRC and pay the taxes due. This should be done as quickly as professionally as possible - you honestly don't want any HMRC investigations whatsoever.



Throughout all of this, it should go without saying that you should keep your day job active, treat this as a side hustle until it's consistently generating your 6 figure profits and only invest what you are happy to lose. If you'd be unhappy to gamble/lose that same amount on sport, lotto or whatever then consider lowering the seed capital.

DoctorStrange said:

Ok, so it's highly unlikely you're going to achieve your objectives.

As I'm sure you already know, you'd be far more likely to make a profit by investing sensibly rather than go up against professional Wall Street traders, hedge funds and global investment banks. I'd wager you're almost certain to lose money in this venture, but in fairness you won't be the first nor last to do so.

Good luck to you with it - even if you fail, you'll learn from it and God loves a trier so, if you are definitely set on this path, I'd consider the following: 

1) Set up a limited company
It doesn't cost that much, it'll add a veneer of professionalism and, most importantly, it segregates "your money" from "the company's money". (This part is actually critical - too many people ignore the distinction and wind up confusing the two, treating the company account as just another current account. Avoid this from the start by ensuring you "wear three hats" i.e. know when you're a private individual, when you're a Company Director and when you're a Professional Trader)

Ensure the company has a proper name and SIC code - this may prevent issues with HMRC later if they ever check your "trading" versus "investment" credentials.

2) Set up a company bank account 
Once YourCo is up and running, open a bank account in it's name, ensuring the bank knows it's a high-risk trading company. You'll unlikely to be able to access credit, but that's ok given you won't need any as you can fund everything from your profits. 

3) Seed your investment capital
You, as a private individual, can loan your company money to get it started. You can even charge your company interest, which is Corp Tax deductible and taxable for your as an individual.

4) Employ your first trader
As Company Director you'll have certain responsibilities by default. However, you may also wish to consider an employment contract between YourCo and yourself as a Professional Trader. This ensures that it's clear which capacity you're working in for each activity. You'll need to pay yourself NMW, which is deductible from your profits.

5) Trade on paper first
Now YourCo is funded, you should begin trading but I'd recommend you continue paper trading, in the companies name, to prove out your strategies and start to create an audit trail. Again, this may help with future HMRC audits so be sure to log all paperwork professionally e.g. strategy name, why you've chosen it, expected entry and exit points, risk mitigants, ongoing analyses etc. Basically, you're looking to prove you're a professional trader here rather than an ordinary Joe following WallStreetBets or YouTube finfluencers.

6) Trade
Once you're ready to make money, open a real money account in the company's name and start trading, logging the same audit trails as before. 

7) Hire an accountant 
With the profits now building up, you'll want to have professional advice on how best to account for everything. The costs of this are deductible, and they'll be able to advise the most efficient methods of repaying the loan from YourCo to yourself, and you can decide on the optimal remuneration package for yourself as the employee (i.e. whether you wish to use Company contributions into a pension, pay yourself a salary or bonus, let the funds accumulate etc).

They'll also be able to help ensure the correct taxes are paid, any that you have all the correct paperwork etc. Depending on your engagement with them, that may also help with your personal taxes as well. 

8) File your returns
With your accountants help, file all the necessary paperwork with HMRC and pay the taxes due. This should be done as quickly as professionally as possible - you honestly don't want any HMRC investigations whatsoever.



Throughout all of this, it should go without saying that you should keep your day job active, treat this as a side hustle until it's consistently generating your 6 figure profits and only invest what you are happy to lose. If you'd be unhappy to gamble/lose that same amount on sport, lotto or whatever then consider lowering the seed capital.

Thank you for this, super helpful and detailed advice.

Thank you for the vote of confidence, I know the odds are against me but I appreciate the take!

flaneurs_lobster

Just remember, don't hit the 'BUY' button twice by mistake.....