Offset expenses incurred in Sharedealing & P2P lending etc. against income for self-assessment tax?

[Investor]

I do UK Peer-to-Peer lending and stockmarket trading full-time, only with my own money, and they are my exclusive source of income. I don't have a formally set-up business for this.

I'm just doing my self-assessment return and wondering if the costs I incur for sharedealing and P2P lending - they're not much, but things like the cost of buying and repairing a computer etc. - could be treated as expenses and offset against my income for tax purposes?

Or does P2P lending not allow one to claim expenses?

Also, am I technically a 'Sole Trader' or are there other requirements to qualify for that?

Cheers.

[doug2500]

I'm not sure if the fact it's your full time occupation changes anything but generally the only allowable costs are those directly resulting from trading e.g. commissions.

While it would make sense to me that fringe costs like platform fees, memberships and subscriptions should be allowable it's my understanding that they aren't. These seem to me to be reasonable costs incurred in the pursuit of taxable profits but I don't think they're treated that way.

[Gengulphus]

I do UK Peer-to-Peer lending and stockmarket trading full-time, only with my own money, and they are my exclusive source of income. I don't have a formally set-up business for this.

I'm just doing my self-assessment return and wondering if the costs I incur for sharedealing and P2P lending - they're not much, but things like the cost of buying and repairing a computer etc. - could be treated as expenses and offset against my income for tax purposes?

On sharedealing, almost certainly not. The reason is that when it's done by an individual, it's an activity the taxman almost always treats as investment, not as a 'trade'. That renders the main transactions liable to CGT, for which allowable costs are restricted to the acquisition costs of the investment (the price you paid for the investment itself), the incidental costs of acquiring and disposing of the investment such as broker commission and Stamp Duty (*) and enhancement costs (**). They don't include the sort of thing you're talking about - see (*) below. If you receive dividend income, that's subject to Income Tax - but AFAIAA, you cannot claim expenses for it that aren't specifically associated with receiving that income, and I don't know of any specifically associated with receiving dividends (e.g. if you were to lose the use of your computer, your dividends would continue to arrive in your broker account, your bank account or as cheques arriving through your mailbox).

As implied by my two uses of "almost" above, there are exceptions - if they're determined enough and willing to conduct their sharedealing in a suitable way (essentially very much the way that a market maker goes about it) an individual can get it accepted as carrying out a 'trade'. That would make the sort of expenses you're talking about allowable, provided they were specifically associated with the 'trade' - but it would also make the profits subject to Income Tax, which usually means higher tax rates than CGT. On top of that, sharedealing in ways suitable for that treatment is likely to be quite onerous - and someone trying to get it will probably face an uphill battle convincing the taxman that their sharedealing amounts to a 'trade'. If you want to see stuff more "from the horse's mouth" than that, see the HMRC manual pages listed in https://www.gov.uk/hmrc-internal-manual ... l/bim56800 (though note that HMRC manual pages are generally addressed to an audience of HMRC staff dealing with taxpayers rather than to taxpayers themselves - so sentences saying e.g. "you may encounter X" are not saying that you as a taxpayer might encounter it).

On peer-to-peer lending, it's not something I've done and so I've no real knowledge of how the taxman is likely to treat it. My guess is "similarly to sharedealing - i.e. as investment rather than a 'trade', with rare and hard-to-qualify-for exceptions". But all the information I think I can give about it is a pointer to HMRC's manual pages on the "badges of trade" (i.e. the things they look at when deciding whether something is a 'trade'), which are listed in https://www.gov.uk/hmrc-internal-manual ... l/bim20200.

(*) Incidental costs must be specifically linked to the acquisitions and disposals, not general costs of being able to acquire and dispose of investments such as broker account fees, the costs of a computer or of an internet connection, etc.

(**) Enhancement costs are more usual for other types of capital transaction, such as the costs of extending a house between buying and selling it - though I believe that if a share you're holding has a rights issue and you take up your rights, the subscription cost technically enhances the rights to full-blown shares and so is an enhancement cost.

Gengulphus