Additional earnings and interest tax

rob78

I am employed PAYE. I know I can also earn £1000 on interest saving before I pay tax on it. I also know you can earn £1000 on a hobby before you pay tax. What I am confused about is can I use both of these ie receive £2000 without taxation or is the limit £1000 tax free regardless of category. Thanks in advance.

Dazed_and_C0nfused

rob78 said:

I am employed PAYE. I know I can also earn £1000 on interest saving before I pay tax on it. I also know you can earn £1000 on a hobby before you pay tax. What I am confused about is can I use both of these ie receive £2000 without taxation or is the limit £1000 tax free regardless of category. Thanks in advance.

It is upto £5,999 interest that can be taxed at 0% for a basic rate payer.  There is no "allowance".

How much of your PAYE income do you pay basic rate tax on?

There is a trading allowance of £1,000.  That has no connection to savings interest.

There is also a property allowance of £1,000.  Again that has no connection to savings interest.

If you had the right mix of income you could benefit from,

Personal Allowance
Savings starter rate band
Savings nil rate band
Dividend nil rate band
Trading Allowance
Property Allowance

To name but a few!

rob78

Total salary is 35k so I guess 23k is the portion of paye I pay 20% tax on. Thanks for clearing up that both savings interest and trading allowance are both separate and both can be used. I don't understand that £5999 interest can be tax free, everything I have read staedlltes £1000?

Dazed_and_C0nfused

Interest from ISA's would be "tax free".

Non ISA interest is taxable.  But there might be no tax to pay on some or all of it.

Salary is often irrelevant for tax purposes but assuming your taxable earnings are £30k+ and you have some interest (less than £20k) but no other taxable income then the first £1,000 of the interest would be taxed at 0%.

But if your taxable earnings were say £13,000 and you had no other non savings non dividend income then the first £5,570 interest would be taxed at 0%.  £4,570 from the savings starter rate band and £1,000 the savings nil rate band (aka Personal Savings Allowance).

rob78

1. 35k salary PAYE
2. 1000 interest on savings
3. 1000 trading profit

Which of the 3 will I pay tax on?

Dazed_and_C0nfused

rob78 said:

1. 35k salary PAYE
2. 1000 interest on savings
3. 1000 trading profit

Which of the 3 will I pay tax on?

Assuming that is your entire taxable income then it will be some of 1 and all of 3.

2 will be taxed but at 0% so nothing to pay on it.

Bookworm105

rob78 said:

3. 1000 trading profit

be clear on your use of words...
Profit = income minus expenses.
The trading allowance is a deduction from your trading income, it is not a tax free allowance and obviously it refers to income from a trading activity so, as already said by others, is utterly independent of (savings) interest

It is an either/or calculation of profit:
a) Income - actual expenses = taxable profit
Or
 b) Income - £1,000 trading allowance = taxable profit 

You therefore claim actual expenses, not the allowance, if they are more than £1,000 as that leaves less taxable profit.

Your statement you have 1,000 trading profit is misleading as that could mean anyone of 3 positions::
2,000 income - 1,000 actual expenses = 1,000 taxable "trading" profit, tax would be payable on that 1k
2,000 income - 1,000 allowance = 1,000 taxable "trading" profit, tax would be payable on that 1k
1,000 income - trading allowance = 0 taxable profit so no tax payable