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Making use of the trading allowance

Newsletter issue - November 2018.

The introduction of the new trading and property allowances for 2017/18 onwards mean that those with low levels of income from these sources may not need to report it to HMRC.

The trading allowance is £1,000 for 2017/18 and 2018/19. Broadly, those with trading income of less than £1,000 a year, no longer need to report it to HMRC. This may be particularly useful for people with casual or small part time earnings from self-employment, for example, someone who up-cycles old furniture for resale on eBay or similar.

Where the trading income is more than £1,000, the trader has the choice of either deducting the £1,000 allowance from income to arrive at the taxable profit, or computing profits in the usual way by deducting actual expenses.

Practical implications of the allowance include:

  • where actual expenses are less than £1,000, deducting the trading allowance will be beneficial, whereas if actual expenses are more than £1,000, deducting the actual expenses will give a lower profit figure, and ultimately a lower tax bill.
  • where income is less than £1,000, but the individual makes a loss, an election for the allowance not to apply may be made. In this case, the loss in the usual way and include the details on their tax return. This in turn, means that loss relief is not wasted.

Example - Mary's bake-off

Mary enjoys baking and makes celebration cakes in her spare time, which she sells to family and close friends. In 2017/18 her income from cake sales was £800 and her expenditure was £150. As her trading income is less than £1,000, she does not need to report it to HMRC.

Example - Marty's memorabilia

Marty is an avid collector of sporting memorabilia but he regularly sells items he no longer wants and duplicate items via an online member's forum. In 2017/18, his income from sales was £1,500 and his expenditure was £450.

As Marty's expenditure was less than £1,000, it will be beneficial for him to claim the trading allowance. His taxable profit will be £500 (£1,500 less the trading allowance of £1,000).