When is additional income taxable?

HMRC is getting more efficient at detecting and penalising people who make extra income but don’t declare it. 

A recent case, Milasenco v HMRC 2023, is an example of the resources available to HMRC for detecting undisclosed trading. HMRC used special software to identify Milasenco’s online trading and referenced this against his tax returns.

Naturally, HMRC is interested in anyone who makes a little extra through freelance work or online selling. A lot of people now, since lock down are making a little money with sideline activities.

However, there is an exemption for low-value businesses.

If your trading income doesn’t exceed £1,000 in the tax year, the trading allowance exempts it from tax. 

If your income exceeds £1,000, you can elect to deduct the trading allowance in place of your actual expenses. There’s a similar £1,000 allowance for rents received from property.

Income from trading is only taxable if the amount received exceeds the trading allowance of £1,000 per annum. There’s no requirement to declare the income to HMRC unless it exceeds the trading allowance. If it’s greater you must declare it. The trading allowance can be deducted from income to arrive at the taxable amount instead of actual expenses.

Capital gain?

If your activity isn’t taxable as income, you still need to consider whether you need to report any profits as a capital gain. However, the first £6,000 of gains in 2023/24 will be exempt, plus the chattels exemption will cover individual items which are sold for less than £6,000.