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ACCA Strategic Professional · Advanced Taxation (UK) · Income tax: income from self-employment

Priya, a sole trader, has trading profits of £80,000 and no other income in 2025/26. She has unused annual allowance brought forward and wants maximum tax relief on a personal pension contribution. Which statement is correct about the limit on the relief she can obtain?

Priya can obtain relief on personal pension contributions up to her relevant UK earnings, which are her £80,000 trading profits, provided total contributions fit within the annual allowance plus any unused allowance carried forward. The £3,600 limit applies only to individuals with no earnings.

  1. ARelief is limited to the higher of her relevant UK earnings and £3,600, subject to the annual allowance (including any unused allowance brought forward)Correct
  2. BRelief is limited to £3,600 because she is self-employed
  3. CRelief is limited to 25% of her profits, being the cap on income tax reliefs
  4. DRelief is limited to the annual allowance of £60,000 only, regardless of her earnings

Explanation

Personal contributions qualify for relief up to the higher of relevant UK earnings (trading profits for a sole trader) and £3,600. Total contributions are also tested against the annual allowance of £60,000 plus unused allowance carried forward. The £3,600 figure applies only where there are no earnings, so option 2 is wrong.

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