PLEASE NOTE: The charity TaxAid advises only those people on low incomes whose problems cannot be resolved with HMRC.

Trading Allowance

Self-employed - running a business and paying tax

This allowance has been introduced from the 6 April 2017 (tax year 2017/18)

The Allowance is £1,000 of GROSS income. That is income before any expenses. The exemption is automatic and if your self employed income is £1,000 or less you do not need to tell HMRC or file a tax return. It applies to individuals only,not partnerships (e.g husband and wife trading in partnership). So if you have a small gardening business and your income in 2017/18 is £900, this is covered by the trading allowance. You do not need to report this income to HMRC or pay tax on it.

You can claim the higher of the trading allowance of £1,000 or business expenses. You cannot claim both. So if your income in 2017/18 is £6,000 and expenses £500, you can instead claim the allowance of £1,000 so your profit is £5,000.

It is necessary to register for self assessment and file tax returns if you wish to pay class 2 NIC on trading income. It is also necessary to file tax returns if you wish to claim losses. For example if you have trading income of £700 but business expenses of £900 there is a loss of £200. Your income of £900 is below the amount of the allowance so there is no requirement to report this income. If you wish to claim the loss of £200 then  you will need to complete a tax return. You cannot use the allowance to create a loss so using the same example of £700 of trading income, you cannot claim the £1,000 allowance to create a loss.