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Business News

Could you earn £1,000 tax free using the new trading allowance?

October 17, 2018

Its true to say that the new trading allowance, introduced in The Finance Act (No.2) 2017 has largely gone unnoticed. However for many individuals, especially those who have a small second income generated by carrying out some work, it is proving to be a very useful tax break. So what exactly is it?

The trading allowance means that:

  1. Individuals with a trading income of £1,000 or less in a tax year do not need to declare or pay tax on that income
  2. Individuals with a trading income of more that £1,000 can elect to calculate their profits by deducting the allowances from their income rather than the actual allowable expenses.

The trading allowance can also apply to miscellaneous income such as consultancy work or providing assets.



HMRC have set out various conditions in which this allowance applies (see ITTOIA 2005 S783A). The £1,000 allowance relates only to gross receipts and not the profit generated from the trade. If trading income exceeds the £1,000 the individual can choose to either deduct their actual business expenses from the trading income in the usual way and pay tax on this profit or they can elect instead for the £1,000 trading allowance as a deduction from income.

We had a client recently whose main income is derived from his limited company. He provides IT services and is a high rate tax payer.  During 17/18 he also provided a tutoring service on an ad hoc basis and was paid a total amount of £800.  We claimed the trading allowance within his tax return for the tutoring service income and by doing so he paid no tax or NI on this £800.

There are some circumstances where the trading allowance cannot be applied:

  • Income that attracts rent-a-room relief
  • Any income derived from an employer or a spouse / civil partner’s employer
  • A partnership in which they – or a connected party – are a partner
  • A close company in which they – or an associate – are a participator

There is also a separate Property Allowance for small receipts from letting property. So if you had £800 of trading income and £900 from AirBnB you could claim £1,700 tax free.

For more information and help in claiming the allowance please contact us.