The Trading and Property Allowances
What is the trading allowance?
The trading allowance is an amount of up to £1,000 per tax year which you can use against any gross income made from self-employment, casual or miscellaneous sources (such as babysitting or selling goods through a website). So, it can be very useful for people earning small amounts of self-employment, casual or miscellaneous income, particularly if you have low expenses.
If you have total gross income from self-employment, casual and miscellaneous sources which is £1,000 or less, then using the trading allowance the benefit of the trading allowance is that you do not have to register your self-employment with HMRC or complete a Self-Assessment tax return, unless you have other reasons to submit one and you won’t have to pay any tax on this income.
For example, if you have gross self-employment income of £800 and gross casual income of £125, you could use the trading allowance instead of registering your self-employment with HMRC or completing a tax return (unless you needed to for another reason as mentioned above). This means the £925 is not taxed and you do not use your tax-free personal allowance against it.
You can never use the trading allowance to create a loss. So, in the example above, you have £925 of income against which you can use the £1,000 trading allowance. But you do not take away the £1,000 allowance from the £925 income, to give a minus figure (or loss) of £75. The £75 is just spare allowance, which is not used.
If you must complete a tax return for another reason, then you do not need to include income that is fully covered by the trading allowance. If you have previously been in Self- Assessment but now do not need to be because your income is covered by the trading allowance, then you could contact HMRC and ask them if they will agree to withdraw any notice to file a tax return they have sent.
If your total gross self-employment, casual and miscellaneous income is more than £1,000 then you can claim ‘partial relief’ using the trading allowance. This means you can take away £1,000 from your gross income instead of any actual business expenses or capital allowances but you do need to complete a tax return.
For example, if you have total gross self-employment income of £2,600 and expenses of £450 then it would be beneficial to claim partial relief using the trading allowance, as this would reduce your self-employment profits to £1,600 (£2,600 minus £1,000) rather than deducting actual expenses under the usual rules, which would give you a profit of £2,150 (£2,600 minus £450).
You should submit a Self-Assessment tax return if you are claiming partial relief using the trading allowance. You claim partial relief by completing the relevant box on the tax return.
There may be some occasions when it is better for you not to use the trading allowance. It is also important to understand that you still need to report the income covered by the trading allowance for some means-tested benefits, such as universal credit (although not for tax credits).
What is the Property Allowance?
The Property Allowance follows the same basic principles but is a separate allowance for rental income. If you have rental income in the year above £1,000 you must inform HMRC (usually via Self-Assessment) and you have the choice of deducting either actual allowable expenses or a flat £1000, whichever will produce the lower rental profit figure.
There are a few things to bear in mind:
- These allowances are per person, not per trade/property.
- The Trading Allowance cannot be used for partnerships, or if any of the income is derived from an employer, spouse, or civil partner.
- The Property Allowance cannot be used for partnerships, but where a property is simply jointly owned (e.g. husband and wife) each owner should qualify for it.
- The Property Allowance does not apply where relief is being claimed under the Rent-a-Room scheme.
- Some individuals who are exempted from Self-Assessment may anyway elect to submit tax returns to, for example, pay voluntary National Insurance Contributions (to obtain State Pension credits) or to preserve a self-employment record to support other relevant future benefit claims.
If you are over 60, you can contact Tax Help for Older People by calling the helpline on 01308 488066. The helpline is open 9.00 am to 5.00 pm Monday to Friday. If the line is busy, or you want to call outside office hours, then please leave a message and an adviser will call you back. You can also email us at firstname.lastname@example.org
Alternatively, if you are under 60, you can contact TaxAid, on the helpline number 0345 120 3779, and again please leave a message if the line is busy. This helpline is also open 9.00 am to 5.00 pm Monday to Friday. If you would prefer to send an email enquiry, please send it to email@example.com
This article is by Tax Help for Older People Registered Charity no 1102276 (Scotland no SC045819), offering free tax advice to older people on a low income who cannot afford professional help.