1. Key points
1.1. Trade profits calculated in accordance with generally accepted accounting practice (GAAP)
1.1.1. Accruals basis
1.2. Two steps to calculate taxable trading income
1.2.1. 1: calculate profits per the accounts
1.2.2. 2: adjust profits for tax law e.g. add back depreciation and deduct capital allowances
1.3. Trading allowance may benefit small trades
1.4. May elect to use cash basis instead
2. Cash basis
2.1. Trading income for basis period = income received - allowable expenses paid
2.2. Relief for loan interest capped at £500
2.3. Deduction for most capital expenditure
2.3.1. Some still added back and capital allowances claimed e.g. cars
2.4. Electing to use the cash basis
2.4.1. Exclusion condition
2.4.1.1. Can not be an excluded person
2.4.1.1.1. An LLP
2.4.1.1.2. Partnership with a corporate partner
2.4.1.1.3. Elected to use herd basis or averaging
2.4.2. Receipts condition
2.4.2.1. Cash basis receipts do not exceed the relevant maximum
2.4.2.1.1. £150,000
2.4.2.1.2. £300,000 if claiming Universal Credit
2.4.2.1.3. Adjusted pro rata where basis period not 12 months
2.4.3. Once made election applies for each subsequent year
2.5. Leaving the cash basis
2.5.1. Receipts in subsequent tax year > £150,000; and
2.5.2. Receipts > £300,000 in the previous take year
2.6. Transitional adjustments apply on entering and leaving the cash basis
3. Trading allowance
3.1. £1,000 per tax year
3.2. Full relief
3.2.1. Relevant income < £1,000, not taxable
3.2.2. Can elect for full relief not to be given
3.2.2.1. Beneficial if losses made
3.3. Partial relief
3.3.1. Relevant income > £1,000, taxed on excess
3.3.2. No relief for actual expenses
3.3.3. Claim must be made for partial relief
3.3.3.1. Beneficial if expenses < £1,000
3.4. Relevant income
3.4.1. Receipts of individual's relevant trades
3.4.1.1. Partnerships and rent-a-room not relevant trades
3.4.2. Miscellaneous income
3.5. Excluded receipts
3.5.1. Amounts received from an individual's employer
3.5.2. Amounts received from a partnership of which the individual is a partner
3.5.3. Amounts received from a close company of which the individual is a participator