Mr Akhtar Ali is a pharmacist who has dabbled in the stock market since the 1990s. Before 6 April 2006 he reported his profits and losses as capital gains and losses. From 2006/07 onwards he reported his share dealing as a separate trade on the self-employed pages of his tax return. He made losses for all years to 2011/12 which he claimed as sideways loss relief against his income from the pharmacy.
HMRC rejected the claims for sideways loss relief on the basis that the share dealing was not a trade. This resulted in additional tax due of over £278,643 plus penalties of £57,037. Akhtar Ali appealed against those penalties and assessments, representing himself at the Tax Tribunal.
He managed to persuade the Tribunal that his “day-trading” work of buying and selling quoted shares within a few hours or days amounted to a trade carried on with a view to a profit. He had made a profit of around £200,000 in the year 2000. He worked almost full time on the share dealing, employing a locum to run the pharmacy for him. He also drew up a business plan for the day trading, which the tribunal judge found persuasive towards trading. The sideways loss claims were thus allowed and the penalties removed.
There have been several cases decided in the High Court on the issue of whether share dealing is a trade (see Salt v Chamberlain (1979) STC 750) and in general the taxpayer has lost. HMRC may well appeal against this decision, as although a First-Tier Tribunal judgement does not set a precedent, it may encourage others and guide the thinking of other Tribunal judges. Please contact the office if this applies to you, and we can help you decide whether your share dealing losses qualify for sideways loss relief.