Trading allowance for business owners and landlords

When you’re just starting out in your business, it can be difficult to know when, how, and where you need to pay tax. Luckily, the trading allowance gives you one less thing to worry about at the beginning.

This tax-free allowance is available to business owners and landlords who have an annual income of less than £1,000. It’s also two separate allowances – so if you’re a landlord who also runs a business, you’re able to get both.

Keep reading to learn everything from how the trading allowance works with business expenses to how being paid in cash affects your income.

What is the trading income allowance?

The trading allowance, or the trading income allowance, is a tax exemption for business owners. Put simply, the trading allowance means you don’t need to report any earnings up to £1,000 a year – or pay tax on them.

This applies to sole traders, small business owners, or those running a side hustle – which in itself can include things such as babysitting, gardening, or minor handyman work you’re paid for. Basically anything that provides you income.

However, even if you’re not earning more than £1,000, it’s still important to keep accurate records of your income in case HMRC ever needs to see them. This will also be beneficial if your business takes off and you find yourself earning more than £1,000 in a year.

Before you claim the trading income allowance, you should remember that you’ll be unable to deduct any other business expenses or allowances after claiming.

It’s also worth remembering that the trading allowance is different from the personal allowance, which is the amount employees can earn before paying tax through PAYE. The trading allowance applies only to business owners.

What is property income allowance?

The property income allowance is another tax exemption for those who earn income from land or property – offering a tax-free allowance up to £1,000. And if you own property jointly with another person, you’ll both be eligible for the allowance dependent on your share of the rental income.

This means that if your annual gross income from your property is £1,000 or less, you won’t need to inform HMRC. If your property income is higher than this, you’ll need to register for Self Assessment and start paying tax.

However, it’s important to note that the property trading allowance doesn’t include those who rent a room in their own home.

What if I earn more than £1,000?

Once your business earns more than £1,000 in one tax year, you’ll need to register with HMRC for Self Assessment – and file your tax return every year moving forwards.

If your income is more than £1,000 in one tax year, then you can choose to deduct the trading allowance rather than other expenses or allowances. If you do this, you can deduct up to £1,000 – but not more than the total amount of your income.

For example, if your business earns £1,500 in one tax year, you can choose to claim the trading allowance in order to make your taxable income only £500. This gives you the opportunity to either:

• pay tax on your full earnings (after deducting expenses)
• or only pay tax on the amount over £1,000 (without being able to deduct further expenses)

This isn’t always beneficial for everyone though – and often depends if your expenses are more than your total income. It’s always a good idea to speak to a financial adviser before making decisions about what you claim.

Should I register for Self Assessment if I earn less than the trading allowance?

Whilst you don’t have to register for Self Assessment if you earn less than the trading allowance, there’s a few reasons you may choose to do so anyway. These include:

• wanting to pay Class 2 National Insurance contributions in order to receive certain benefits
• wanting to claim tax-free childcare or maternity allowance

Once again, speaking to a financial adviser is a good idea before making these decisions.

Reporting tax on cash in hand jobs

While being paid cash in hand isn’t illegal in itself, failing to declare accurate earnings to HMRC is. So whether you’re paid for a job in cash or through your bank account, all earnings must be declared, and their total will affect whether or not you’re eligible for the trading allowance.

This is just another reason why it’s so important to keep a record of your earnings.

Has the £1,000 trading allowance been scrapped?

No. Both the trading income allowance and property income allowance are both still set at £1,000 each. So if you’re just starting out in your business or landlord journey, you can continue to benefit from these allowances.

Looking for more information on taxes? Check out our tax hub to keep up to date on all the latest developments.

More tax guides for business owners

• Self-employed tax brackets 2023-24
• Tax on a second job – a guide for your side hustle
• HMRC reporting changes – will your side hustle be taxed?
• Is business insurance a legal requirement?