Trading allowance – simplicity with strings

The £1 000 trading allowance was first introduced in 2017 and has provided a welcome if rather low profile simplification for many taxpayers ever since.

The allowance unexpectedly came back into the spotlight early this year when new reporting requirements for digital platforms were widely (and wrongly) reported as a ‘side hustle tax’ on those selling goods and services online. This prompted renewed interest in the trading allowance but also highlighted some misunderstandings as to how it works and who might benefit from it.

This article provides a refresher of the trading allowance rules as well as pointing out some practicalities and potential pitfalls for those looking to claim.

How does the trading allowance work?

The trading allowance essentially provides an income tax and class 4 National Insurance exemption for up to £1 000 of trading income each tax year. In this article I...