Flow chart - claiming the trading allowance

The trading allowance is a fixed tax deduction which can be claimed against miscellaneous income or income from self-employment in place of the actual costs incurred in generating it. In effect it means that individuals can receive up to £1,000 of income tax free.  However, there are many anti-avoidance rules which are hard to follow.

Flow chart

The Flow Chart - Claiming the Trading Allowance will help you decide if you are entitled to claim for a tax year.

Definitions for the flow chart:

• Connected person - for the purposes of the trading allowance a person is connected to another person if they are that person’s:

• spouse or civil partner
• brother or sister
• ancestor
• lineal descendant
• spouse’s or civil partner’s brother or sister
• spouse’s or civil partner’s ancestor
• spouse’s or civil partner’s lineal descendant

• Associated person - associates for most tax purposes means persons who are
  • relatives:
    • a husband, wife, or civil partner
    • parents and remoter forebears
    • children and remoter issue, e.g. grandchildren; and
    • siblings
  • partners in any partnership
  • trustees of a trust the person is involved with; and
  • the personal representatives of a deceased person if the person has an interest in the estate

• A close company is defined as any UK-resident company which is controlled by five or fewer participators, or any number of participators who are directors.