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The trading and miscellaneous income allowance gives relief to an individual with relevant income (BIM86007) from relevant trade(s) and/or miscellaneous income, up to the amount of the trading allowance which is 拢1,000. The allowance applies from 6 April 2017.

The legislation covering these measures is included as S783A 鈥揝783AR Income Tax (Trading and Other Income) Act 2005 (ITTOIA).

If an individual qualifies for full relief (BIM86011) the individual鈥檚 relevant income from relevant trades and/or miscellaneous income is treated as nil, and not charged to income tax. Use of the trading allowance is optional, and it may not suit an individual鈥檚 circumstances for example if a trade is loss making (BIM86076). If an individual does not want to use the trading allowance, he or she should make an election for full relief not to apply (BIM86025) and calculate their profits using the normal rules and complete their Self Assessment tax return in the normal way.

Individuals whose relevant income from a relevant trade or miscellaneous income is more than the trading allowance can choose between:

• treating their taxable profit as the amount by which their total relevant income聽exceeds the trading allowance, without any separate relief for expenses or capital allowance (鈥減artial relief鈥�) by making an election for partial relief (BIM86015); or
• calculating their taxable profits in the normal way on total income less actual expenses and capital allowances (the 鈥減rofit method鈥�).

Whichever method is used, the individual is chargeable to Income Tax and Class 4 NICs on the taxable profits. In the absence of the relief, profits would be chargeable to Income Tax either as the profits of a trade or as miscellaneous income in the normal way. Individuals can only use the allowance to reduce their taxable income to nil, the allowances cannot be used to generate a loss.

Individuals whose relevant income includes income from a connected party are not eligible (BIM86030) for the trading allowance for that tax year.

You can find a simple introduction to the trading allowance on the HMRC Internet site by searching on tax-free allowance on property and trading income.聽 This sets out other circumstances where an individual qualifying for full relief may be required to register for Self-Assessment or Class 2 NICs.聽

You may find it helpful to look at these introductions before reading the detailed guidance in this section of the BIM.

BIM86005聽 聽Definitions: Relevant Trade

BIM86007聽 聽Definitions: Relevant Income from Relevant Trades and Miscellaneous Income

BIM86010聽 聽Computation Overview聽

BIM86011聽 聽Computation: Full Relief

BIM86015聽 聽Computation: Partial Relief

BIM86025聽 聽Elections

BIM86030聽 聽Exclusions

BIM86040聽 聽Other Considerations

BIM86070聽 聽Examples