Introduction to this document

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.