RE: TAX19 Jun 2018 20:19
A "trading allowance", introduced last year, permits everyone to earn £1,000 tax-free from "trading" activities, such as selling your own products online on sites such as eBay, Etsy or Gumtree.
This income is completely tax-free and does not need to be declared.
Say you had £1,000 turnover from selling books via eBay and costs of £100. That would generate profits of £900 and there would be no tax to pay, and no need to make a declaration.
However, if the turnover was £1,001 you would have to tell HMRC via a tax return. And without making an election, the tax office's default position is to deduct expenses (£100) and charge tax on the profit. That means you would pay tax on £901 instead of £1.
Assuming the individual was a basic-rate, 20pc, taxpayer, that extra £1 of income would create a tax liability of £180.20, compared to no tax (or, technically, tax on £1) if the person had elected to use the allowance.