Skip to content

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

Ravi, a sole trader, has trading profits of £320,000 in 2025/26 and no other income. Which statement about his annual allowance for 2025/26 is correct, assuming his threshold income exceeds £200,000 and his adjusted income is £320,000?

Ravi's annual allowance is £30,000. Tapering applies because threshold income is above £200,000, and adjusted income exceeds the £260,000 limit by £60,000, so the £60,000 allowance is reduced by half that excess, £30,000. The result is above the £10,000 minimum allowance.

  1. AThe £60,000 allowance is reduced by £1 for every £2 of adjusted income over £260,000, giving £30,000Correct
  2. BThe allowance is reduced by £1 for every £2 of income over £200,000, giving £0
  3. CThe allowance is reduced to the minimum allowance of £10,000 because income exceeds £260,000
  4. DThe allowance is unaffected because only employees are subject to tapering

Explanation

With threshold income over £200,000, tapering applies. Adjusted income exceeds £260,000 by £60,000 (£320,000 - £260,000), so the reduction is £60,000 / 2 = £30,000. Allowance = £60,000 - £30,000 = £30,000, which is above the £10,000 minimum allowance, so option 3 is wrong.

Did you get it right without looking?

One question tells you little. A timed set on Income tax: income from self-employment shows your real accuracy, how long you take and where you lose marks.

Practise Income tax: income from self-employmentFree diagnostic mock

More Income tax: income from self-employment questions