The £1,000 trading and property allowances

The allowances

Trading allowance

Up to £1,000 a tax year (GOV.UK)

Property allowance

Up to £1,000 a tax year

Both types of income

A £1,000 allowance for each

Jointly owned property

Each owner gets £1,000 against their share of the gross rent

Income of £1,000 or less

Where gross trading income from one or more trades is £1,000 or less, or gross property income from one or more property businesses is £1,000 or less, the allowance covers it in full. HMRC's guidance says the income does not need to be reported to HMRC, unless one of the restrictions stops the allowance applying.

A client may still want to file. The SA103S notes say a return is needed to pay Class 2 National Insurance voluntarily, and give the boxes to fill in where a client wants to keep a record of self-employment, claim Tax-Free Childcare or claim back Construction Industry Scheme deductions.

Income over £1,000 and partial relief

Above £1,000 the client chooses. They can deduct the £1,000 allowance from gross income, which HMRC calls partial relief, or deduct their actual allowable expenses. They cannot do both. Using the allowance means no other expenses or allowances can be deducted.

For example, a client earns £3,200 from weekend photography with £400 of allowable expenses. Deducting the trading allowance gives taxable profit of £2,200. Deducting expenses gives £2,800. The allowance gives the lower figure. If the expenses were £1,500, deducting expenses would give the lower figure of £1,700.

For example, a client lets a parking space for £1,800 a year with £200 of costs. Deducting the property allowance gives taxable income of £800. The gross income is over £1,000 and up to £2,500, so HMRC's guidance says to contact HMRC.

The allowance cannot create a loss. HMRC says it can be deducted up to the amount of the income and no more. A client whose expenses exceed their income and who wants relief for the loss deducts expenses, as the SA103S notes explain.

Who cannot use the allowances

• Income from a company the client, or someone connected to them, owns or controls (GOV.UK).
• Income from a partnership where the client, or someone connected to them, is a partner.
• Income from the client's employer, or the employer of their spouse or civil partner.
• The property allowance cannot be used on income from letting a room in the client's own home under the Rent a Room Scheme.
• The property allowance cannot be used where the client claims the tax reduction for finance costs, such as mortgage interest on a residential property. See the property finance cost restriction.
• The property allowance cannot be used where the client deducts expenses from room-letting income in place of using the Rent a Room Scheme.

Telling HMRC

HMRC's guidance sets out when a client must tell HMRC about income over £1,000. Gross trading income over £1,000 means registering for Self Assessment. For property income, and for other income, gross income over £1,000 and up to £2,500 means contacting HMRC, and over £2,500 means registering for Self Assessment. A client already registered uses the allowances by deducting them on the return.

The trading allowance can be split across more than one business and against miscellaneous income, according to the SA103S notes.

Questions