The HMRC £1,000 Annual Tax Allowance is a great little tax break that can really benefit you if you are newly self-employed or just getting started with your side hustle.
What is the HMRC £1,000 Annual Trading Allowance
The HMRC £1,000 Annual Trading Allowance is available to everyone who earns an untaxed self-employment income of £1,000 or less.
What is Untaxed Income
Untaxed income refers to earnings that are paid to an individual without any tax deducted.
When someone is employed the money they receive is generally paid to them after tax and national insurance is deducted.
Other types of income commonly do not have any tax deducted at source but are taxable.
Common untaxed types of income are:
Anyone who earns any untaxed income of less than £1,000 can claim the HMRC Trading Allowance.
Those that fall into this category can choose to not tell HMRC about this income or even register as self-employed, avoiding the need to submit a Self-Assessment Tax Return (depending on their status).
- Income means the amount you receive before deducting costs and expenses
- Annual means tax year, which runs 6 April to 5 April
Who Can Benefit from the HMRC £1,000 Annual Trading Allowance
Everyone is entitled to make a claim for the HMRC £1,000 Trading Allowance and it really suits anyone who is:
- Newly self-employed;
- Starting a side hustle while holding down a
- Those who make a small amount of money from things like eBay, Etsy, Babysitting, Gardening, Blogging.
How to Claim the HMRC £1,000 Annual Trading Allowance
If you do not currently submit a tax return then you don’t need to do anything to claim for the trading allowance but you must keep records of your income and expenses to evidence that you are entitled, should HMRC ever ask.
Consider setting up a spreadsheet and make sure you file all your business receipts.
You must also keep an eye on your untaxed income because once it goes above the trading allowance you will need to register for Self Assessment by 5 October in the business’ second tax year.
If you are already registered for self-assessment for another reason, for example, you are a landlord, then you must still continue to submit your tax return as well as including your income within the self-employment section of your tax return.
To claim the £1,000 trading allowance simply show you income within the turnover section and your trading allowance claim as an expense to reduce your income to zero or by £1,000.
You’ll need to submit a CWF1 Form Online to let HMRC know you have
Is the HMRC £1,000 Trading Allowance Right for You
As with most tax allowances you should make sure that claiming them is right for you and your situation both now and in the future.
Here are some considerations you must take into account before deciding to use the HMRC £1,000 Trading Allowance:
- 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 HMRC £1,000 trading 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 HMRC £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.