Question: I am currently employed and working full time, however I do sometimes carry out other services for which I earned a few hundred pounds this year.
Do I need to complete a self-assessment tax return for this income? My friend told me that there’s a new trading allowance which may cover my other income, please can you explain?
Mr T – St Leonards
Your friend may be correct, as from 6 April 2017, there is a £1,000 trading allowance available. This means that if your total income in a tax year is £1,000 or less then you do not need to declare that income on a self-assessment tax return or pay tax on that income.
It is important to note that the new rule considers your income and not your profit. You may find that your total profit, which is calculated as income less allowable expenses, is less than £1,000; however, if your total income is more than £1,000, then you would still be required to declare that income on a self-assessment tax return.
If you find that your income does exceed £1,000 in this or a future tax year, then you can now choose to use the annual trading allowance of £1,000 as a deduction in calculating your net profit. Be aware that if you choose to use the trading allowance as a deduction, then this is instead of deducting actual allowable expenses in the usual way. The allowance cannot be used in addition to deducting actual expenses. Using the trading allowance as a deduction can make calculating your net profit much more straightforward and in some cases may be beneficial to using actual allowable expenses.
The trading allowance applies to miscellaneous income from providing assets and/or services. However there are certain circumstances where the allowance will not apply, such as income from a partnership or income which attracts rent-a-room relief. A further income source not covered is income where you are a participator in a close company, meaning a company in which you are a director and shareholder where there are fewer than four other participants.
Finally, if you have more than one source of trading income, that income shall be combined and only one £1,000 allowance may be claimed. As you are currently employed this should not be an issue; however, were you self-employed and carrying out a second trade, you would only be entitled to one allowance.
I suggest that you contact an accountant to determine what affect the new rules will have on your personal position.
Ashdown Hurrey can advise on this matter in addition to other tax, accountancy and business matters. Contact Martin Copland on 01424 720222 or email him at email@example.com.