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Self employed trading allowance

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  • polymaff
    polymaff Posts: 3,950 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Of course, if you make a loss, the trading allowance is the last thing you want to invoke...:)
  • 00ec25
    00ec25 Posts: 9,123 Forumite
    1,000 Posts Combo Breaker
    edited 26 September 2019 at 8:13AM
    Motormad wrote: »
    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.
    without allowance
    turnover 12,000 less costs 380 = profit 11,620
    income tax: 11,620 less personal allowance 12,500 = £0 (of course that assumes there is no other taxable income whatsoever at all)

    NI: self employed profits > 8,632 so small profits exemption does not apply
    Class 2 payable on 52 weeks @ £3
    Class 4 payable at 9% on 11,620 - 8632 = 2,988 @ 9% = 268.92

    with allowance
    turnover 12,000 less costs 1,000 = profit 11,000
    NI "saved" 620 @ 9% = £55.80

    https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income
  • 00ec25 wrote: »
    without allowance
    turnover 12,000 less costs 380 = profit 11,620
    income tax: 11,620 less personal allowance 12,500 = £0 (of course that assumes there is no other taxable income whatsoever at all)

    NI: self employed profits > 8,632 so small profits exemption does not apply
    Class 2 payable on 52 weeks @ £3
    Class 4 payable at 9% on 11,620 - 8632 = 2,988 @ 9% = 268.92

    with allowance
    turnover 12,000 less costs 1,000 = profit 11,000
    NI "saved" 620 @ 9% = £55.80

    https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income

    I agree with your figures,small saving in class 4 but handy going forward if turnover increases above the PA.
  • As has been said the allowance is really for micro traders. Have you really only incurred £380 of expenditure on 12k turnover? It would be a shame if you overpaid NIC due to reliance on the £1k allowance when actual expenses were higher. What about your use of home for maintaining records, premises costs (rates etc), security costs, accountancy costs, etc.?
  • tebthereb wrote: »
    As has been said the allowance is really for micro traders. Have you really only incurred £380 of expenditure on 12k turnover? It would be a shame if you overpaid NIC due to reliance on the £1k allowance when actual expenses were higher. What about your use of home for maintaining records, premises costs (rates etc), security costs, accountancy costs, etc.?

    I probably should have been claiming for use of home but it’s only recently that increasing turnover has pushed us into class 4 nic territory and will stick with the £1k allowance.
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