Self employed trading allowance

Motormad

Hi,can anyone explain how this works please.As I understand it you can claim £1000 allowance against tax whereas my expenses only come to around £380. In fact I will be under the tax personal allowance anyway but it would mean slightly less class 4 NIC to pay.

Pennywise

You can substitute the figure of £1,000 instead of ANY other expenses. So, if your expenses, costs of sales, capital allowances, etc all add up to less than £1,000 you can claim a fixed £1,000 as an expense instead.

Motormad

Thanks for that,just wanted to be sure. Is this a fairly new allowance,never came across it before but only been doing my own SA returns for a few years.

polymaff

With your talk of expenses and Class 4 NICs you make me think that you may have got the wrong end of the stick.

The trading allowance is not a function of your expenses or of your profit, but of your turnover.

Basically, if your total self-employed trading turnover is not more than £1,000 in the relevant tax year - and it is all turnover that does not involve companies you are involved in, your employer(s), your partnership(s) or your spouse - you do not need to declare that self-employment income at all.

If all the above caveats apply, but your turnover is more than £1,000 you may claim flat-rate expenses of £1,000 instead of itemised expenses - and it needs to be declared.

Specifically, you cannot "claim £1000 allowance against tax whereas my expenses only come to around £380" per se. You are allowed to discount the lesser of £1,000 and your turnover.

Sorry if you already understand this, but many seem to think that the trading and property allowances are gravy trains to free money. They are not.

Motormad

Thanks polymaff but I’m not sure if I understand your explanation so will give more detail.Caravan storage business,turnover around £12k so nicely within tax PA,not much expenses,mostly fuel,stationery,post and occasional groundwork’s. Filling in tax return and noticed this £1k trading allowance and read about it recently and thought why not use it.Makes no difference to tax but will save a few pounds in class 4 NIC.

polymaff

With £12k turnover and £380 expenses you will benefit by electing to use the trading allowance instead of itemised expenses - providing none of this income comes from "connected people" as mentioned in my previous post, and, that you have no other trading income that involves "connected people" or that you plan to claim expenses/costs for.

The trading allowance was originally meant to help micro-traders, such as occasional ebay traders and the like, to legalise their activities. Since then it has been enhanced to help other small businesses with their tax returns - a bit like the flat-rate VAT system does for small businesses who are VAT-registered.

Compared to attrocities, like the Marriage Allowance Transfer, it is quite a well-constructed implementation of the legislation. But it isn't a gravy train - except to people at your point along the income spectrum....:)

Motormad

Thanks again polymaff,understood,will use it now I know about it. Do you know when it was introduced by any chance?

polymaff

First appeared in Tax Year 2017/18.


Originally announced by George Osborne in March 2016 as part of his "a tax break for the digital age" plans.

Motormad

Thanks for that,have only missed the one year then.

BoGoF

Motormad wrote: »

Thanks for that,have only missed the one year then.

You should still be in time to amend your 17/18 Tax Return.

Motormad

BoGoF wrote: »

You should still be in time to amend your 17/18 Tax Return.

Thanks but not worth it this time as I had nearer the £1k last year when we got loads of sub base for hardstandings.