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F. Naz
F. Naz, B.Com
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I have a question about how the £1000 Trading Allowance

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I have a question about how the £1000 Trading Allowance works. This situation is hypothetical because that's the best way I can think to put it.Me and a friend collaborate and make a digital product, and then sell that product online for £10. We decide to split all money made from the product 50/50. We sell a total of 10 copies, and the platform we're selling it on sends £100 to my bank account. (Because I'm the person who owns the account on the platform that we're selling from) I then send my friend the £50 that I would owe them.In this situation, would I count £100 towards my Trading Allowance, or would I just count the £50 that I kept?Thank you. I hope that makes sense.

Do you still need answer and by when

Customer: replied 4 months ago.
before the 19th thank you.

Okay will update you

As of 6th April 2017, if you’re a sole trader with income from your business of under £1,000 a year, then you don’t have to register for Self Assessment with HMRC, or pay tax on your business income.

If your income is over £1,000 a year, you still have to register with HMRC, but you can use either the trading allowance of £1,000, or your actual business expenses and capital allowances, against your income to work out your profit. You can’t use both the trading allowance and your actual costs against your income - you have to use one or the other.

The trading allowance isn’t available to partnerships, partners, or limited companies.

Examples

Janelle has just set up in business as a dog-walker. She earns £750 a year from this and all her other income comes from her full-time employment. Janelle doesn’t have to register with HMRC as a sole trader or pay tax on her business profit, because her income from her business is under £1,000.

Dured is a self-employed photographer. He earns £1,750 income a year from his business and incurs expenses of £600. Using his actual expenses figure would make his profit £1,750 - £600 = £1,150. Using the trading allowance instead of actual expenses would make his profit £750. In order to make his profit lower and save tax, Dured uses the trading allowance to work out his profit.

Ross is a self-employed graphic designer. He earns £1,750 income a year from his business and incurs expenses of £1,100. Using his actual expenses figure would make his profit £1,750 - £1,100 = £650. Using the trading allowance instead of actual expenses would make his profit £750. In order to make his profit lower and save tax, Ross uses his actual costs to work out his profit, and does not use the trading allowance.

From the definition of allowance and example given it looks like that trading allowance is using the earning or income figure so as your earning and income figure is 100 on the business so you need to use 100 figure for trading allowance the money you give to you friend will later be counted as expense but you cant less that amount as you using trading allowance. You can either use trading allowance or actual expenses to figure out profit. You can see this in the examples

Note if you find my information helpful then kindly let me know, thanks.

Reference

https://www.freeagent.com/en/glossary/trading-allowance/

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