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His Majesty’s Revenue and Customs (HMRC) has announced plans to close its self-assessment helpline for up to six months a year and scale back other helplines to push taxpayers towards getting information online and using different channels. This move is designed to wean the public off of human tax agents, but more people are finding it difficult to file taxes correctly and now risk having issues with the HMRC. Filing taxes could be tricky for forex traders and other online investors; understanding the process can prevent problems with the HMRC.
What To Know About the UK Tax Regulation
UK tax bodies collect taxes based on income, residency status, direct and indirect taxes, and the levels of government (central and local). The HMRC is responsible for taxes at the highest level; capital gains, corporate tax, fuel duty, VAT, and income tax are all under their jurisdiction. They also oversee regulations related to employment status, including determinations of whether contractors fall inside vs outside IR35 – a key consideration for many freelancers and businesses.
The type and amount paid as tax depends on the individual’s or company’s status. For example, an individual trading forex will not be taxed if the profit is less than £1000. This is why individuals must find helpful information about their tax status to avoid issues with the HMRC.
Income Tax
Private investors are subject to income tax on their earnings. Forex traders engaged in forex trading as a secondary source of income can enjoy up to £1,000 of tax-free profits. However, higher profits are taxed based on specific income tax brackets.
Here’s a clear table illustrating the income tax rates in the UK:
| Income Range | Tax Rate | Income Rate Type |
| Up to £12,570 | 0% | Personal allowance |
| £12,571 – £50,270 | 20% | Basic Rate |
| £50,271 – £150,000 | 40% | Higher rate |
| Over £150,000 | 45% | Additional rate |
To calculate income tax, determine your taxable income by adding your allowances and subtracting any losses from previous years. Personal allowances can be claimed based on marital status, number of children, business expenses, or gifts made to others.
Capital Gains Tax
Capital gains tax applies to profits made from selling off assets. When traders and investors profit from selling stocks, bonds, options, properties, and antiques, they must appropriately file once-off capital gains tax. Forex activities are taxed according to the frequency of trading; occasional (hobby) traders are taxed based on the income tax rate for profits.
When taxed based on the basic income rate, forex traders pay 10% on capital gains but pay 20% when their profits grow above the basic income bracket. Corporate bodies pay 24% on residential property and 20% on other chargeable assets, while sole traders pay 10% if their gains qualify for Business Asset Disposal Relief.
Spread Betting and CFDs Tax
The HMRC classifies Contracts for Difference (CFDs) and spread betting as gambling, so forex traders that trade with these methods are exempt from tax payments on whatever profits they make. Gambling is tax-free in the UK, but players (CFDs and spread betting traders) cannot offset their losses against any table income.
Corporate Tax
Forex trading companies are taxed according to corporate income rates. The rate is 19% for companies actively trading forex (regular trades). However, companies that occasionally engage in forex transactions are taxed based on capital gains, i.e., when they sell or buy foreign or local currencies, based on their income tax rate.
Filing Tax Returns as a Forex Trader
To file tax returns correctly, forex traders must understand their income status. Here’s a typical process for filing taxes:
Status Assessment
Traders must confirm their income band to determine their tax rate. This is necessary, especially for full-time traders whose income increased after the last tax payment. If trading is a frequent activity, the trader may need to register with the HMRC as a self-employed individual and present a Self Assessment tax return.
Registration
The HMRC has set October 5, 2024, as the deadline for self-employed taxpayers to register for the 2023/2024 tax year. The process is simple and can be completed quickly on the Government Gateway Account. The next step is to pay taxes on forex profits and complete the necessary documentation.
Filing Records
Traders are advised to keep records of their forex trading activities, such as entry and exits, aunts, exchange rates, and fees. They should also keep a record of their tax payments for easy access.
Pay Tax Online
The HMRC operates a mobile app that allows people to pay their taxes online. The government also has a tax portal where taxpayers can log in and pay using debit or corporate credit cards. The HMRC also allows many banks to offer customers online tax payment services. Taxpayers need their unique taxpayer reference (UTR) for all methods.
Get Support
We understand that keeping up with tax returns may be overwhelming and time-consuming, especially with several updates from the HMRC. For forex traders who are too busy or somewhat confused about the process, we suggest that you:
- Speak with financial/tax advisors to understand the process faster.
- Consult tax agencies, such as Tax Scouts, Grant Thornton International Company, BDO Global Accounting Company, or RSM International.
- Explore the HMRC online community forum where taxpayers share experiences and help one another.
File Your Tax Returns Correctly
Forex trading is an online activity with potential profits, which makes forex traders interesting to the HMRC. Learning how taxes are classified and how to file returns correctly will help traders stay on the HMRC’s good books. Learn how taxes apply to your trading profit and organise your books for correct tax filing. Start trading and get professional assistance from qualified tax agencies.
