With less than 60 days to go for submitting a self assessment tax return, many self-employed people in the UK are not taking advantage of an allowance that could help them pay less tax.
According to data received through a Freedom of Information request from HMRC obtained by TaxScouts, at least 86 per cent of sole traders who are claiming expenses and capital allowances of less than £1,000 are not claiming the entire Trading Income Allowance.
The Trading Allowance lets sole traders claim the first £1,000 of income from self-employment as a flat tax-free allowance.
If they earn less than £1,000 from self-employment, they don’t need to pay anything: it’s completely tax-free. They just need to file a self assessment.
If they earned more and their expenses are less than £1,000, self-employed individuals can just claim this full allowance instead – it’s bigger and they don’t need to worry about providing receipts (though, everyone should save their receipts if needed in the future).
The data obtained from the HMRC show that 471,000 sole traders who could be claiming this allowance are not doing it. Out of this number, only 67,000 (roughly 14 per cent) filed a claim for the Trading Income Allowance in the last tax year.
Mart “Tram” Abramov, Co-Founder and CEO of easy tax preparation TaxScouts, commented: “Self-employed individuals could be saving hundreds of pounds on their tax bill with this allowance. HMRC doesn’t do a good job promoting this scheme which could be the reason why so many people are not taking advantage of it. It’s a shame the government fails to educate taxpayers on an allowance that can actually benefit them financially, as well as save them added stress hunting down receipts and bank statements when it comes to filing their self assessment return.”
Taxpayers can claim the Trading Allowance in the following situations:
When they are self-employed sole traders
If they are a construction worker claiming CIS tax rebate
If they are providing casual services – for example, if they are babysitting or selling a few things on eBay
If they are renting out items – for example, power tools
Landlords have a £1,000 similar property allowance. If individuals have both types of income, they will get a £1,000 allowance for each.