A: If your clients total trading income (before deducting any expenses) in the tax year is more than £1,000 they can choose to deduct the trading allowance from the trading income instead of deducting their actual business expenses for the period. If they do this, the taxable profit from the activity will simply be the total income less the trading allowance. For example, if your client has total income of £1,500 in 2022/23, and your client decides to claim the trading allowance, your client’s taxable profit will be £500. It would be beneficial to claim the trading allowance in this way if you do not have very high expenses related to the activity. It also means that you do not need to prepare any business accounts for tax purposes.
As your client’s income is above the trading allowance HMRC will require them to register for self-employment and complete a Self- Assessment tax return. The claim for the trading allowance is made on page 1, box 10.1 of the self-employment (short) pages (SA103S) of the tax return.
These publications from Markel Tax were correct at the time of going to press and should be considered as principles-based guidance only. To check current validity, call the Markel Tax helpline. ICAEW (as distributor) disclaims all liability for any errors or omissions.
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