Imagine HMRC doesn’t have a special “prop firm” box to tick. Instead, they try to fit your activity into one of two existing boxes. Which box you land in makes a world of difference regarding your taxes.

• The “Trader” Box: This is where most successful prop firm folks end up. If trading is your main job, then HMRC will likely see you as running a business. You’re putting in the hours, treating it like a job, and it’s your primary source of income. The money you make here is considered trading income. This means it’s taxed under Income Tax rules, and you’ll need to file a Self-Assessment tax return each year, just like a freelancer or small business owner would.
• The “Investor” Box: This is for someone who might buy a few stocks and mostly forget about them. It’s passive. For most people actively trading a prop firm account, this box is a tough sell. The very act of passing a challenge, following strict rules, and aiming for profit targets screams “active business,” not “passive investment.”

Getting this right from the start is your first and most crucial step. It sets the stage for everything else.

It’s Not What You Make, It’s What You Keep: The Magic of Expenses

Here’s the silver lining if you’re classed as a trader: you don’t pay tax on your total profit. You pay tax on your taxable profit. This is where you can seriously work the system in your favour.

Think of all the things you need to buy to do your job effectively. Many of these are “allowable expenses”—costs you can deduct from your total income before calculating your tax bill. It’s like getting a discount on your essential toolkit.

So, what can you typically claim?

• Those challenge fees? Absolutely. The money you spent on evaluations is a direct cost of earning your income. Write it off.
• Software and Data: Your trading platform subscriptions, data feeds, and charting services? All in.
• Your Home Office: Do you trade from a dedicated space? You can claim a fair proportion of your heating, electricity, broadband, and even council tax. There are simplified methods for this, so you don’t need to measure every lightbulb.
• Learning the Ropes: Books, reputable courses, financial journals—if it’s directly helping you sharpen your skills, it’s likely deductible.
• The Kit: A reliable computer, extra monitors, a comfortable chair—if it’s necessary for your work, it counts.

The key is to keep it sensible and keep every receipt. A shoebox full of receipts is a trader’s best friend come January.