You might have heard that you can earn £1,000 per tax year without paying any tax on it, but did you know that this is known as the trading allowance? Here you can find out more about the trading allowance and how it can help you out.
What is the trading allowance?
The trading allowance was first introduced for the 2017 – 2018 tax year, and it allows people in the UK to earn up to £1,000 per tax year without having to pay income tax on it.
It has been given lots of names over the years, however the official name is ‘trading allowance’.
How can you earn the £1,000 from the trading allowance?
Sometimes referred to as the ‘cottage industry allowance’, this covers most additional earnings (or sole earnings up to £1,000)
This can include things like making jam and selling it on your driveway; doing online surveys; reselling items on eBay or even rental properties.
Is it £1,000 after expenses, or before?
It is very important to understand that this allowance does not include expenses.
That means if you earn £1,500, your expenses were £1,000 and your profit is £500 that you do not need to pay tax. You have earned £1,500 and will need to declare this extra income to HMRC.
What if my income is less than £1,000?
If your income is less than £1,000 for the tax year then you will have no taxable income – and therefore there is no need to complete your self assessment tax return.
There ARE some cases where you might want to register for, and complete, your self assessment tax return.
These reasons include:
- Wanting to pay voluntary Class 2 National Insurance Contributions.
- To get a record of your self-employment earnings for things like maternity allowance or mortgage applications.
- To claim tax-free childcare.
What if my income is more than £1,000?
If your additional income is more than £1,000 then you can still deduct the trading allowance amount. You might choose to do this instead of your actual business expenses if it is more beneficial for you.
When completing your self assessment tax return you will see the following question:
Was your turnover more than £1,000 in total from all self-employments?
Can I use my trading allowance across numerous income streams?
Yes you can!
If you have more than one type of income, for example, selling jam, selling print on demand products and mystery shopping, you will be able to combine all of these income streams and then claim one trading allowance per person.
The only way you will get two trading allowances is if you have both property income and income from other revenue streams.
To summarise the trading allowance
The trading allowance applies to individuals (not partnerships or companies) who are earning income from self-employment, side hustles, cottage industries, etc. This can either be their main income or on top of a job.
If your gross income per tax year is under £1,000 you do not need to tell HMRC.
You must tell HMRC when your gross earnings go over £1,000.
