TAX ON PROFIT FROM TRADING AND GAINS FROM DISPOSAL
The tax on profit from trading and gains from disposal can often be mistaken. The consequence of this can be very severe depending on how long this mistake has been going on.This mistake can be easily done ignorantly because of the amount of profit involved.
DIFFERENCE BETWEEN PROFIT FROM TRADING AND GAINS FROM DISPOSAL OF ASSET.
Trade is not defined in the tax law but its determined by case law. This makes it more complicated to assess if one is trading or not.The courts developed some tests to access if trading or not.This is referred to as badges of trade.
If you are trading you pay income tax or national insurance on the profit made from the trade.This would be at 20%/40%/45% depending on the individual.The tax would be paid to HMRC by 31st January after the tax year.
Gains from a disposal of an asset would be at 10% for a basic taxpayer or 18% for disposal of residential property.For higher and additional taxpayer it is at 20% for gains from disposal of an asset or 28% for residential property
THE CONSEQUENCES OF PAYING THE WRONG TAX ON PROFIT FROM TRADING AND GAINS FROM DISPOSAL OF ASSET.
The tax paid on profit from trade is usually more than the gains from disposal.This usually leads to underpayment of tax and usually for a longer period of tax.
The HMRC would open an investigation on the individual self-assessment. The person could be penalized for submitting an incomplete self-assessment return.The reason for the penalty is because the individual has not declared they were trading on their returns and therefore paid wrong tax. Therefore, their returns would be reassessed underpayment in tax
ADVICE IF THE TAX ON PROFIT FROM TRADING AND GAINS IS PAID WRONGLY.
It is very easy to make such mistake I would advise the following steps
- Apply the badges of trade to your circumstances.
- If you can get help, get professional help to deal with the tax situation.
- Ensure that you voluntarily make the declaration to HMRC, It usually helps to reduce your penalty.
- Make a payment plan with HMRC to settle the outstanding payment.
- What you shouldn’t do is to ignore this, as the longer, you leave it the more complicated it gets.
CONCLUSION ON TAX ON PROFIT FROM TRADING AND GAINS FROM DISPOSAL.
To read more, https://www.gov.uk/capital-gains-tax . If you would like to have 30 mins free consultation, kindly contact us at Ronzl Accountants.