Client has made a profit trading on certain sports, similar to trading the stock market I supppose. He's made a profit of around 1k on the year and says it's just something he dabbled in whilst trade was quiet. All done through a sole director Ltd Co
Trouble is I havent a clue how to record it, I've looked at investments - current on my VTT+ but it shows as a debit on the balance sheet and nothing on the P+L so that can't be right. Sales - investments perhaps? On the opposite side of the coin though, what if he had made a loss on the trading, would I show the loss on the P+L but then disallow it on the computation?
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"Trading"
I am not sure what he has been doing. I am fairly certain he has not bought Cycling and sold Flat racing. I suspect what he has done is betting. now in that case apart from the problem of betting shops not accepting bets from corporate bodies it is not business for the purpose of HMRC and so no tax, and it does not meant the definitions under GAAP for inclusion in the accounts, probably, so in reality nothing happened except the company "loaned" him the money, he won on a bet and then paid the loan back to the company and then loaned an additional amount, coincidentally the same as his winnings, to the company.
But all of this depends on what is meant by trading.
I believe it is a form of gambling so would be inclined to put the transactions through his loan account.
HMRC do not view gambling as a trade. If they did, they would have to allow the rest of us to claim trading losses.
As I understand it, a 'professional gambler' does not pay tax on his/her gambling profits.
It sounds as though he's acting as a sort of amateur bookmaker who's both backing and laying - i.e. betting on both outcomes hoping to make a small profit whatever happens. Betting exchanges facilitate this since they charge a commission on winnings rather than a built-in profit in the odds. However their commissions wipe out most of the punter's profit so that he has to operate in a big way to make a living.
If he's aiming to make a living or a worthwhile part of his living out of this activity, then it sounds very much like an adventure by way of trade, and he's quite right to be concerned that HMRC will view it as such.
george.gill-AT-themacds.com wrote:
If it was the case that it becomes a trading activity, and going back to my original question, how would I show it in the accounts?
If it is trading activity, then surely the trading is treated like any other trading activity so income = sales and expenses = expenses (cost of sales or admin).
HMRC differentiate between company and personal gambling/dealing, with the outcome that a company can and will be taxed on such profits, whereas an individual may not.
Much of the HMRC guidance seems to centre on derivatives, such as BIM56890 and CFM50070.
This suggests it may qualify as a taxable (trading?) activity in the company and so need to be recognised in the P&L and not disallowed in the tax comp.
Not sure how you would do this in VTT+ though - sorry.
I don't know that there is any rule of thumb on this. Obviously HMRC won't be very interested in an activity that racks up £50 a year, but once you're into four figures, you're into reporting territory, particularly if the client hopes to grow it in the future.
You may at this stage have the luxury of being able to choose whether it's a corporate activity or the director using his DLA to fund an activity of his own. But I guess the documentation may be a determining factor - whose name is the betting exchange account in? If it's the director's name, that's a strong pointer that it's his activity rather than the company's.