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HMRC internal manual

Business Income Manual

Example: Full relief applying

Jumail has employment income from his full time job, but on weekends also provides dog walking service to the residents of a nearby apartment block earning £15 per week. Jumail incurs expenses on dog treats, £200, and advertising flyers, £100.

 

Jumail’s relevant trade is that of being a dog walker. Jumail has no other trades or miscellaneous income.

 

Jumail’s relevant income for the year is £780 (calculated as £15x52weeks). Jumail’s expenses total £300 (treats £200 + advertising £100) which means that Jumail’s trade is a profitable trade as his income exceeds his expenses.

 

As Jumail’s gross income is no more than the £1,000 allowance, Jumail qualifies for full relief and the profits or losses of his trade are treated as nil. Jumail does not have to complete a self-assessment return in relation to this income.

 

Jumail automatically qualifies and does not have to make any election to claim full relief.

 

In this instance it is beneficial for Jumail to use the allowance as it means he does not have to pay tax on his profits nor does he have to complete a self-assessment return. If Jumail did not qualify for the allowance he would pay tax on £480 of profit (£780 gross income less £300 allowable expenses).

 

Jumail cannot deduct the full £1,000 allowance from his income of £780 to create a £220 loss as individuals cannot use the trading allowance to create losses.