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For 2017/2018 the trading allowance is £1,000, this is an exemption for small trading activities. For example this allowance is for teachers who do a small amount of tutoring on the side

If your income is under £1,000 there is no income tax to pay, but also no need to register with HMRC and file tax returns.  You need to monitor your income year on year and register for self assessment if your income goes over £1,000 a year.

The aim is to provide simplicity but, as always, there are certain complexities to be aware of.

If your trading income exceeds £1,000 you can choose to either:

• Deduct actual business expenses in the normal way, or
• Elect for the £1,000 trading allowance as a deduction from income
• Individuals can decide year on year which approach to take
• Applies to both cash and accrual accounting (Unless your accrual accounting would be more than £1,000 but your cash basis would be less)

The following exclusions from using the trading allowance apply:

• Cannot be used for partnership income
• Cannot be used for income which attracts rent a room relief
• No relief if an individual’s trading income includes any amounts from
  • An employer (or spouse/civil partner’s employer)
  • A partnership of which you (or a connected party) are a partner
  • A close company of which you (or a connected party) are a participator

Already self employed and starting a second trade?

Unfortunately this £1,000 trading allowance is unlikely to work for you.

For the purposes of the trading allowance the income and profits of all an individual’s trades are combined.

e.g. a self employed builder, with sales of £30,000 per year, starts up a small business giving trumpet lessons, with sales of £500 a year.  Full relief will not be available, as his combined sales are greater than £1,000.  Partial relief in unlikely to be attractive as he could not claim expenses for his building trade.

This creates an unequal situation as an individual with  unlimited income from employment or a partnership can claim the trading allowance but an existing sole trader is unlikely to.

If you have any questions on this article and how it affects you and your business, please get in touch here.

JLA Accounting Limited takes every care in preparing material to ensure that the content is accurate and up to date. However, no responsibility for loss for anyone acting from or refraining from acting as a result of this information can be accepted by JLA Accounting Limited.