£1,000 trading allowance:
What is it?
HMRC introduced what is known as the ‘Trading allowance’ in the 2017-18 tax year in order to reduce the total amount of tax payable on income earnt from self-employment and other casual or miscellaneous sources i.e. Babysitting or Gardening.
What does it mean?
The trading allowance allows those who are eligible to claim up to £1,000 each year tax-free.
If your total gross total sales in the year do not exceed £1,000 then you will not be required to report this to HMRC via a self-assessment return.
However, if your total sales exceed the stated £1,000, relief is instead granted at the higher of either:
- The £1,000 trading allowance
- Actual business expenses incurred in the year.
Why is this beneficial?
This could be particularly useful for those who do not incur high business expenses in the year that could utilize the allowance and minimize their total taxable income.
HMRC do still require that you maintain an accurate record of all income and expenses in the tax year in order to determine if the allowance is applicable.
There are, however, certain restrictions on who can and can’t claim this allowance. For more information, please do not hesitate to get in touch or visit the GOV.UK website provided below.