Do you remember when eBay first emerged and become a revolutionary trading platform for buying or selling and, yes, turning a profit? As social-media has expanded, so have trading websites to the extent that there’s hardly a town, village or group that does not have a ‘buy’n sell’ page.
HM Revenue & Customs have naturally been following this expansion and this financial year introduced new Trading Allowance legislation, designed to simplify income tax obligations for minor amounts of trading and miscellaneous income.
If your trading and miscellaneous income is less than £1,000 in a tax year, then it is exempt from income tax and there is no requirement to report that income to HMRC or to file tax returns. However, if you are interested in using the Allowance then other factors impact.
It applies to total income, not profit and if that income exceeds £1,000 it must be reported in the usual way. If trading income is above that figure, you can choose to deduct your actual trading expenses in the normal way or take the £1,000 trading allowance. This is a Partial Relief claim. You can opt for one but not both and you can choose on a year-by-year basis which to take.
The Trading Allowance is not applicable to a trading partnership, nor can it be used if trading income includes any amounts received from a partnership in which you are a partner, a company in which you are a participant or if you are an employer.
The income from all of your trades is aggregated for the purposes of the allowance. So, if as an existing sole-trader, you start up a small business on the side, it is unlikely the allowance would be of any use as the income from both trades would probably exceed £1,000. Full relief would not be available and, as expenses from the main trade would probably exceed £1,000, a Partial Relief claim would not be feasible.
To summarise: Trading Allowance could be a very useful tax relief for an employed individual or a partner in a partnership with an on-line trading activity on the side. However, for the self-employed the allowance is unlikely to be relevant.