Does the trading allowance reduce taxable overall income?

Dazed_and_C0nfused

MW92 said:

Have you tried looking at the return itself?

I've never had to submit a return so I'm trying to get my ducks in a row for the next financial year. 

If your turnover is £2,000 and you claim the trading allowance of £1,000 then your profit cannot possibly be £2,000.  It would be £1,000.

Ok, so again lets completely forget about pension contributions and assume I contribute £0 and also assume I don't earn any taxable interest, no benefits in kind etc., based on this my taxable income would be £56,000 (£55,000 PAYE + £1,000 self-employment)? 

You cannot deduct net pay or salary sacrifice pension contributions.  This is because they have already been factored in when establishing your taxable income so if you deducted them they would be double counted.

I completely understand how pensions work and was not really relevant to my question, other than to give context to my situation and my aim to get my adjusted net income below the HICBC threshold.

If that is the case where are you getting a figure of £55,000 from as this contradicts your original post 🤔

I salary sacrifice £5,000 via my PAYE employment into my pension, bringing my PAYE taxable income down to £50,000.

Anyway if you are claiming the trading allowance (of £1,000) against self employment turnover of £2,000 then your taxable profit would be £1,000.  And that £1,000 is what is relevant tax (and HICBC) purposes.

MW92

If that is the case where are you getting a figure of £55,000 from as this contradicts your original post 🤔

It's not the case I was just trying to make my question simpler. 

Anyway if you are claiming the trading allowance (of £1,000) against self employment turnover of £2,000 then your taxable profit would be £1,000.  And that £1,000 is what is relevant tax (and HICBC) purposes.

Ok, I think this is it... 

I salary sacrifice £5,000 via my PAYE employment into my pension, bringing my PAYE taxable income down to £50,000.

So let's re-introduce this. This would make my ANE solely from PAYE £50,000. We then factor in £2,000 taxable profit from self-employment, however, I claim the TA so my taxable profit is actually £1,000. My ANE (from all sources) then rises to £51,000. Therefore, to avoid the HICBC I make a further £1,000 contribution to my pension bringing my ANE back to £50,000. 

I really appreciate your responses btw I just want to make sure I'm doing the right thing! 

Dazed_and_C0nfused

MW92 said:

If that is the case where are you getting a figure of £55,000 from as this contradicts your original post 🤔

It's not the case I was just trying to make my question simpler. 

Anyway if you are claiming the trading allowance (of £1,000) against self employment turnover of £2,000 then your taxable profit would be £1,000.  And that £1,000 is what is relevant tax (and HICBC) purposes.

Ok, I think this is it... 

I salary sacrifice £5,000 via my PAYE employment into my pension, bringing my PAYE taxable income down to £50,000.

So let's re-introduce this. This would make my ANE solely from PAYE £50,000. We then factor in £2,000 taxable profit from self-employment, however, I claim the TA so my taxable profit is actually £1,000. My ANE (from all sources) then rises to £51,000. Therefore, to avoid the HICBC I make a further £1,000 contribution to my pension bringing my ANE back to £50,000. 

I really appreciate your responses btw I just want to make sure I'm doing the right thing! 

We're nearly in agreement now.

Your profit is only ever £2,000 if you don't claim trading allowance.

I think you need to understand the difference between turnover and profit otherwise you will continually be confusing yourself!

If your total taxable income is £51,000 and you want ANI to be £50,000 then you would pay £800 to a SIPP and with the basic rate relief the pension company adds you would have a gross contribution of £1,000.  Which knocks £1,000 off your ANI.

Don't forget that on reality HICBC only applies when ANI reaches £50,100.

MW92

@dazed - Excellent thank you. My understanding of the terminology is amateur at best so thank you for clearing it up! I will make those contributions into a SIPP as suggested which should hold me in good standing for next years self assessment - hopefully once I have done one it will be plain sailing!