Did you know that if you earn* less than £1000 in a year, you don’t have to pay tax? In fact, you don’t really have to tell HMRC about the business at all.
But if you earn* more than £1000 in a year, you can deduct £1000 from your earnings* and maybe pay a bit less tax?
It’s true!
There are actually 2 allowances, one for earnings & one for property, but I'll just talk about the earnings one here.
In short, you don’t have to tell HMRC anything at all if you've earned less than £1000 in the tax year… though there are some cases where you still may have to fill in a self-assessment (e.g. made a loss and want to claim relief, want to pay voluntary NIC, want to claim tax free childcare costs, want to claim maternity allowance).
Personally, I've registered for self-assessment anyway, as there's just a box to tick to say if you haven't earned more than £1000 and then its relatively easy to complete the rest of the form. Plus this reminds you that you can pay voluntary NIC so you will still have access to things like the government pension scheme in the future.
If you have earned more, you can deduct the £1000 from your earnings* instead of deducting expenses** or allowances.
If your allowable expenses for the year are less than £1000, then it's more beneficial to you to deduct the £1000 from your earnings. If they're more than £1000, then ignore this allowance and deduct your expenses.
It's worth noting that the earnings of £1000 can come from one or more trades or businesses, but you just get one £1000 allowance - not £1000 per trade/business. Also, if you already submit a self assessment for another reason, then you must include any earnings on it - even if it is a new venture that earns you less than £1000.
There are a few more rules ad T&Cs to the allowance (obviously – this IS HMRC we're talking about) but I didn’t want to list them all here as they're fairly specific and don't affect most people.
*Earn / Earnings = your income before you have taken anything off it.
**this means ALL expenses – i.e. you won't be able to deduct any expenses at all, even if they total over £1000
I hope all that makes sense … please do PM me if you have any questions or email me. liz@money-bee.co.uk
SMLXL