Universal Credit - Self-Employed Stocks and Shares Trading

Hello,

I have a client who needs to claim Universal Credit, due to the managed migration process.

He explains that he has a business “Trading Derivatives (Stock options)”.

He is wanting to know a few things that I am struggling to find some clear information on as the guidance around self-employed and capital, isn’t really tailored for stocks, shares and investing in general.

He wants to know:
-Will the money he is using to buy these stocks be treated as “assets of a business that is trading”. He explains the money is in a business account? He seems to think any money he has in a business account will be disregarded as capital - but I think that what the guidance means around “assets” are things like “tools”, “equipment” etc for the business to be trading.

-Also he wants to know how any profits he makes from these shares will be treated. He believes profits from shares will be treated as capital, and that then this becomes a “business asset” - which he then thinks will be disregarded again. Surely any profit from them, will just have to be reported as an income for his “Self employed earnings”?

-From what I have seen in the guidance, it seems to suggest that purchasing investments, stocks etc, - are not permitted self-employed expenses for UC? So in fact he would have to report any earnings from the stocks he gets profits from, but wouldn’t be able to report any self employed expenses for the stocks he buys??

-He also has some complicated VAT issue, he had explained he wanted to “do a voluntary VAT registration so I could get back the VAT on a few previous years stock”. He is wanting to know how this will be treated if he receives this VAT refund while he is on UC. Would it be possible for this to be disregarded, as long as he is consistent to completely disregard VAT when reporting income and expenses to UC?

Thanks for any help that anyone can give me!!

HMRC generally do not treat such “businesses” as “trades”, but as a series of one-off capital transactions. If this is the case then the self-employed rules of UC wouldn’t apply, nor would the capital disregard for trading assets apply. Your client actually seems to be working under that assumption, as you quote from him that “[h]e believes profits from shares will be treated as capital”. He can’t have it both ways!

There are a large number of tax cases on this point, but generally the cases support HMRC’s view that such activity is not “trading”.

If he is actually found to be “trading”, then the regular capital disregard would apply, and this could include a reasonable amount of cash in his business account needed to support his trading activity, but not excess cash. Whether a particular amount will be reasonable will depend on the facts in each case. He would then also have to report his profit each month on a cash basis. The purchase costs would be an allowable expense.

The VAT issue seems strange, and I would suggest he first consults an accountant or tax adviser.

Hi

Cash held in a business account can be disregarded as capital when someone is Gainfully Self Employed.

His profit is essentially he income- expenses, stocks are shares cannot be classed as a expense.

For UC purposes is Self Employment is much less complex than for HMRC purposes, they only want to know about income and expenses each month and not the finite detail.

Also worth remembering that he will have a Gateaway Interview where it will be assessed if he is gainfully self employed ( is it his main job/ source of income) and if not it is likely he would be expected to work/look for work in addition to his Self Employed ventures.