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.

 



 
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