Trading allowance – income tax simplification?

23rd May 2018

On 6th April 2017 the Government introduced the trading allowance. The aim of this new allowance is to simplify income tax obligations for minor amounts of trading and miscellaneous income.

 In essence, if trading and miscellaneous income is less than £1,000 in a tax year:-

 The income is exempt from income tax

  • There is no requirement to report the income to HMRC or file tax returns

 

 However, there are some points that individuals interested in utilising the allowance need to be aware of:-

 The allowance applies to total income, not profit. If income exceeds £1,000 it will need reporting in the usual way

  • If trading income exceeds £1,000, individuals can choose to deduct one of the following, but not both:-
  • Their actual trading expenses in the normal way, or
  • The £1,000 trading allowance (a partial relief claim)

Individuals can choose on a year by year basis which option to take

  • The allowance cannot be used by Partnership trades
  • The allowance cannot be used if trading income includes any amounts received from:-
  • A partnership in which they are a partner
  • A company in which they are a participator
  • An employer
  • For the purposes of the allowance, the income from all of an individual’s trades are aggregated. So, if an existing sole-trader started up a small business on the side, it is unlikely the allowance would be of any use, since:-
  • The income from both trades would probably exceed £1,000, meaning full relief would not be available, and
  • The expenses from the main trade would probably exceed £1,000 meaning that a partial relief claim would not be economically viable

 

 In summation, the trading allowance could be a very useful tool for employees or partners in a partnership who perhaps have some Ebay trading, however for sole-traders, the allowance is likely to be of irrelevant.

 

Other items in Blogs
Barbara Nicholas
25th May 2022 A Grim Reap?

We work hard to improve our lot and most of us hope that our loved ones will reap some benefit from our endeavours. But assuming that we don’t manage to spend all the fruits of our labours, the taxman is lurking. And he will take a sizeable chunk if we don’t plan sensibly.   The…

Jake Day
17th May 2022 We’re Hiring: Tax Careers at Whitings

With a vacancy now open for a Trainee Tax Technician in our Bury St Edmunds office, we’d like to give you a closer look at the highlights of choosing a career in tax – and also the highlights of choosing Whitings as your employer. Why choose tax? The common misconception with a career in tax…

Peter Brown
16th May 2022 e-Commerce: Are you finding keeping your business’s records a nightmare?

Understanding how to account for your business’s transactions with online selling platforms can be complicated. Ensuring that you are submitting the correct information to HMRC can be tricky as not all platforms have the same VAT treatment.   A2X could make your life easier by saving you time and headaches from the complex world of…

Louise Bassett
10th May 2022 Defra Announce 50% BPS advance

As farmers face being squeezed with price increases for inputs due to the situation in Ukraine and worldwide gas and energy prices, DEFRA have announced that the RPA will advance 50% of the value of BPS payments to farmers from the end of July 2022 with the balance to be paid from December as normal.…

Luke Bacon
10th May 2022 HMRC starts chasing up SEISS overpayments

HMRC has started to recover overpayments of Self-employment Income Support Scheme (SEISS) grants. From April, HMRC is writing to taxpayers whose entitlement to the fourth or the fifth SEISS grant has reduced by more than £100 to ask them to repay amounts that were overpaid. Entitlement to the fourth and fifth SEISS grants can be affected…

Charlie Whittle
5th May 2022 TRS – Information required and annual declarations

Intended as a companion to: TRS Who should register and when. The TRS will collect information about the trust and its trustees, settlors and other individuals or organisations exercising control. This will include: Name of the trust. Date the trust was created. Whether the trust is an express trust or not. Details of the trust…