Trading allowance unfair on sole traders, says ATT

A discrepancy in the £1 000 allowance for trading income may put existing sole traders at a disadvantage compared with employees and people trading in partnership according to the Association of Taxation Technicians.

Individuals receiving less than £1 000 a year of gross trading income are exempt from income tax (full relief). If annual trading income exceeds £1 000 individuals can deduct their business expenses or claim the £1 000 allowance as a deduction from income (partial relief).

A key feature of the allowance is that the income from an individual’s ‘relevant trades’ is combined. This can lead to difficulties when a sole trader starts a smaller second trade. Full relief will not be available because their combined income from both trades is likely to exceed £1 000. However partial relief will not be attractive because traders will be unable to deduct the expenses incurred in their main...