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The Trading Allowance: how to do away with receipts

  • 2 min read
  • Last updated 2 Jun 2023

Perhaps you’ve just become self-employed and want to know when to file for Self Assessment? Or whether you’re entitled to any full or partial tax reliefs? 

Either way, you’ll want to read more for a complete breakdown of the Trading Allowance!

First of all, what is the Trading Allowance?

If you’re self-employed, you can get up to £1,000 each tax year without having to pay income tax or national insurance contributions. This is called the Trading Allowance.

In much simpler terms:

  • If you earn less than £1,000 from self-employment, it’s completely tax-free (no need to complete a tax return for this)
  • If your expenses are under £1,000, you can simply claim this allowance instead (it’s bigger and you don’t need to worry about receipts)
  • If your expenses are over £1000, you can use the Trading Allowance as a partial relief

⚠️ Bear in mind though, if you claim the Trading Allowance of £1,000, you won’t be able to claim any other self-employment allowances (like mileage, home office, etc.) and you won’t be able to claim business expenses. ⚠️ 

Who else can claim the Trading Allowance?

The Trading Allowance isn’t limited to those with a limited company. Here are some others who can claim the Trading Allowance:

  • Construction workers claiming the CIS tax rebate
  • People who provide casual services, i.e babysitting or selling a few items on eBay
  • If you’re renting out items, for example power tools

Landlords are usually entitled to a similar allowance on property income. This is also a cool £1000, so if you have both types of income, you’ll get a £1,000 allowance for each. Sounds good to us!

Do I need to submit a Self Assessment tax return to claim it?

Whether you submit a Self Assessment tax return depends on how much you earn from self-employment.

If your income from self-employment is under £1,000 and you don’t have another reason to file a tax return such as employment income over £100k, then no. You don’t even have to register for self assessment in this case.

On the other hand, if your gross trading income is over £1,000, then you will need to report this income to HMRC by completing a self assessment. 

On your Self Assessment, you should deduct the Trading Allowance and tick the box to ensure HMRC are aware that you are doing so.

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