HMRC £1,000 Annual Tax Free Allowance for Trading & Property Income

From 6 April 2017 HMRC have launched two new tax free allowances to help make the tax system easier.  This is £1,000 annual tax free allowance for trading and £1,000 annual tax free allowance for property. But as with most tax rules, its important to understand how they work and what makes you eligible to claim for them.

£1,000 Annual Tax Free Allowance for Trading

The annual tax allowance for trading is available for those that make a small amount of money from things such as:

  • eBay
  • Babysitting
  • Gardening
  • Blogging

Everyone who earns money in this way is entitled to the tax free allowance. But if your gross annual income must be £1,000 or less (that’s the amount you receive before deducting costs and expenses) and you are not currently registered for self assessment and do not submit a tax return, then you don’t need to tell HMRC about your income.  You must simply keep & store your own records of the money you have made to demonstrate it is below the £1,000 income threshold, in case HMRC ever requested it.

If you are currently registered for Self Assessment and submit a tax return for another reason, then you must include your income on your tax return, regardless of the amount generally within the self employment section of the return. To claim the allowance simply show you income within the turnover section and your allowance claim as an expense to reduce your income to zero or by £1,000.

Remember:

  • HMRC only allows you to claim the trading allowance OR actual expenses, not both. So before you elect to use the allowance check whether it is more beneficial to claim your actual expenses rather than the £1,000 allowance.
  • If you are newly self employed or planning to grow your business you may want to choose to claim your actual expenses to generate a tax loss which you can set off against your future business profits.
  • You cannot claim the allowance if your income is from employment, a partnership or a company you own
  • You cannot use the £1,000 trading allowance to generate a tax loss
  • Say you have two forms of income, for example you do some babysitting and some gardening, you cannot choose to use the trading allowance on your babysitting income and record actual expenses for your gardening work.  You have to choose to claim for the trading allowance OR actual expenses across both babysitting and gardening.

Annual Tax Free Allowance for Trading If You Are Newly Self Employed

If you are newly self employed and expect that your gross income will be less than £1,000, then you don’t need to register for Self Assessment.  However if your gross income in your first tax year of trading is more than £1,000 then you must register for Self Assessment by 5 October in the business’ second tax year.

If you are newly self employed and have spent money on things to get your business up and running, it may be worth registering and submitting a tax return to record your tax loss.  Once officially recorded you will be able to set your loss off against profits in future years, saving you tax later on.

The £1,000 annual tax allowance for trading income is available each tax year (a tax year runs from 6 April to 5 April).

HMRC £1,000 Annual Tax Free Allowance for Property Income

The £1,000 annual tax allowance for property income is available where an individual collects rent on a property.  Again, if your property income is less than £1,000 and you do not currently submit a tax return under self assessment, then you do not need to let HMRC know. Just make sure you keep records of your income.

Remember

  • If you own a property jointly with others, you’re each eligible for the £1,000 allowance against your share of the gross rental income.
  • You are entitled to claim for both the Annual Trading Allowance of £1,000 AND Annual Property Income Allowance of £1,000.
  • You cannot claim the annual property income allowance on income from letting your own home if you are claiming allowances under the Rent a Room Scheme.

The £1,000 annual property allowance for trading income is available each tax year (a tax year runs from 6 April to 5 April).

Anita is a Chartered Accountant, turned blogger and creator of the ever popular free Go Self Employed Email Mini Course, which has been completed by hundreds of attendees all over the UK. Using her 10 years experience in accounting, tax and operations for Small Businesses, Anita is on a mission to make finance simple for the self employed, so they can stop stressing about tax & finances and focus on building profitable businesses which will give them the lifestyle they dream of.