Tax free allowance on trading income.
Many more people are now choosing to have “a side hustle”, they work on their own projects alongside their main source of income. They may be following their passion or it could for much needed cash or to provide a fall back in case the main job doesn’t work out.
For some entrepreneurs that could amount to a substantial second income but for some it may be less sizeable. In the past people had to submit a self assessment tax return even if the second income was fairly small.
From April 2017 if you expect your trading income in the year from a side project to be less than £1000 then you may not have to register for self employment. You can claim up to £1000 tax free as trading allowance. The amount claimed can’t be greater than the income. The limit of £1000 is for total trading income regardless of the number of side projects.
Expected income less than £1000 in year
If you have very few business expenses then it might be better to claim trading allowance. The amount claimable is the lower of £1000 and total trading income. You may not have to register for self employment or submit a self assessment return.
If you have significant business costs then it may be better to register for self employment and claim allowable expenses.
You can claim trading allowance or allowable expenses but not both.
Expected income more than £1000 in year
You have to register for self employment and submit a self assessment return. If it’s a low cost business then it might make sense to claim trading allowance. If business costs are considerable then it might be more advantageous to claim allowable expenses.
Circumstances when Trading Allowance is not available
Trading allowance is not available if the income is from
- Your employer or your spouse / civil partner’s employer
- A partnership in which you are a partner
- A close company which you or someone close to you own or control.
Records you need to keep for Trading Allowance
Examples of type of records you may need to keep
- Any sales invoices or receipts
- Emails confirming income received
- Bank statements
- Statements from customers showing income received.