Trading allowance election to disapply relief

The trading allowance is a fixed tax deduction given automatically against miscellaneous or trading income if it does not exceed £1,000 in total in a tax year. There can be circumstances where it is more tax efficient to disapply the allowance. This requires a special election.

Losses

Where the trading allowance automatically applies but the total expenses incurred in generating the income exceed the income you can elect for it not to apply. This allows you to claim tax relief for the loss.

Example

In 2023/24 Sabena runs a small business selling homemade greeting cards. Her total income from this is £300. She has no other trading or miscellaneous income that can qualify for the trading allowance.  Her costs for materials etc. are £650. Sabena elects to disapply the trading allowance. As a result she records a loss of £350 for which she can claim income tax loss relief.

Making an election 

The trading allowance can be disapplied through a self-assessment tax return or in writing as a standalone claim. The claim must be made within four years from the end of the tax year to which it relates. For example, for 2023/24 the claim must reach HMRC no later than 5 April 2028.