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Posted Thu, 17 Mar 2022 21:41:00 GMT by CMH161821
My spouse and I have recently set up a small business together. Total gross income for the 21/22 tax year will be less than £2,000 (i.e. less than £1,000 each) as we have not traded for a full year. We expect total gross income for the 22/23 tax year to be more than £2,000 (i.e. more than £1,000 each). Would the following be acceptable: 21/22 tax year - we both use our trading allowance tax exemption of £1,000 and so neither of us needs to report the income to HMRC nor register as self employed 22/23 tax year - we register a partnership with HMRC and report our share of income and actual expenses accordingly (trading allowance cannot be claimed against partnership income). A further question. Instead of registering as a partnership in 22/23, can we instead choose to register individually as sole traders in 22/23 and report the income according to the work done by each of us? We can then both claim the £1,000 trading allowance (as this is more beneficial to us than claiming actual expenses). Or, because we work together in our business, would we have to register as a partnership (and therefore be unable to claim the trading allowance as it does not apply to partnership income)? Ultimately, can we choose the business structure (2 sole traders or 1 partnership) which is most tax efficient for our own personal circumstances, or because we work together in our business are we required to choose the partnership structure?
Posted Fri, 18 Mar 2022 15:17:54 GMT by HMRC Admin 20
Hi CMH161821,

HMRC cannot give financial planning advice.
If you are sole traders for 21/22 and each of your trunover is less than £1000 for the year before expenses, then this income will not need to be reported.
If you are looking to set up a partnership for later years please see guidance here:

Set up a business partnership.

Alternatively you can set up as sole traders, this would be your choice, please see guidance here:

Set up as a sole trader

Thank you.

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