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I am developing an sophisticated automated trading application. Initial tests show that it is likely to operate well and at a profit. I am in full-time employment and pay full tax on my earnings. This project has been developed in my spare time.

I have not yet set up a business to front the strategy/application. So, as an individual, how can store any revenue from my software so that it is tax exempt, or at best, what is the best way I can minimize the amount of tax I pay on such revenue? Where and how should I store my funds (assets, stocks, et al)?

I live and reside in the United Kingdom. The work I am doing is unrelated to my full-time employment and I have permission from my employer to work on my own projects.

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    1. Where are you located? Different jurisdictions have very different tax rules. 2. Is your employer aware of your sideline? If you work in any even vaguely related area (esp software development) you may find that they have rights over it, check your employment contract.
    – Vicky
    Commented Mar 20, 2014 at 13:23
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    Hi Vicky, thanks for your reply. I have edited the question...
    – MoonKnight
    Commented Mar 20, 2014 at 13:31

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Earned income is what your software is doing, so it is taxable. So you can't really make it tax exempt.

You can form a business and claim the revenues from that business as income and deduct expenses it costs you to earn that revenue. If you buy a server to run your software, then that is an acceptable expense to deduct from your revenues. Others can be more questionable and the best thing to do is to consult a CPA.

If you are still in the testing stage and the revenues will be small then it should not matter. Worry about the important things, not if you paid the IRS a few hundred to much.

Are you in a state/country that allows online gambling? In most states here in the US you are operating on shaky legal ground. Before "Black Friday" I used to earn a nice part-time income playing online poker.

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  • Yeah, I heard about that US restriction. I think it is crazy to ban online poker. You can do what you want with your money in a democracy can't you?? Obviously not! It is legal, spread betting is like playing any other liquid market as far as the UK law is concerned. I am interested, can I not hold any funds generated off-shore and allow it to be untouchable that way? I am not that concerned yet, but I already get taxed to death and if I now earn 200 pounds I will have to give 100 of it away and I don;t like this idea!
    – MoonKnight
    Commented Mar 20, 2014 at 13:38
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    @Killercam Democracy doesn't mean you can do whatever you want with your money; it means the people decide the course of law - which includes potentially making it so you can't do whatever you want with your money. Commented Mar 20, 2014 at 13:42
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    @JonathanHobbs it was a lighthearted comment and wasn't meant to encapsulate the laws that govern the financial regulation in a well estb. democracy. Clearly, to suggest you can do 'what you want with your money' is ridiculous. However, it is ridiculous that gambling on line is prevented. Clearly some people suffer with addiction in this regard, but to me this should not penalize those who enjoy it. This decision, taken by congress, IMO was not democratic in the true sense, it was autocratic.
    – MoonKnight
    Commented Mar 20, 2014 at 13:55
  • Then every decision taken by congress is autocratic?
    – Almo
    Commented Mar 20, 2014 at 17:04
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    The edit to add the fact that asker is in the UK invalidates this answer. Gambling winnings are NOT taxable in the UK.
    – AakashM
    Commented Mar 21, 2014 at 10:14

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