From April next year, casual traders will be afforded an additional £1,000 tax-free allowance to supplement their income.

The upcoming “trading allowance” will apply to those who earn additional income through online trading – on platforms such as eBay – as well as other endeavours separate from their usual living.

It will also introduce a £1,000 allowance relating to property and short-term lettings.

But according to a report from the Institute of Chartered Accountants of England and Wales (ICAEW), the allowance could pave way for extreme marginal tax payments.

To take advantage of the allowance, individuals need to first “make an election”, which lets HM Revenue & Customs (HMRC) know that you want to make use of the scheme.

This only matters where income is above £1,000 – anything earnt below this sum does not need to be declared.

The problem arises after casual sellers begin earning more than £1,000 each year and fails or forgets to “make an election” to use the allowance.

For example, an individual who earns £1,000 profit through causal trading will pay no tax on their income. Comparatively, the same person who earns £1001 and pays tax at 20 per cent, but forgets to “make an election”, will pay just over £200. Letting HMRC know that you are using the allowance will reduce the tax payment to just 20p.

Sarah Ghaffari, of the ICAEW, said: “These allowances are available to all individuals and can be enjoyed by casual sellers and those looking to make extra cash before the holiday season.

“The question is whether these individuals will be aware that they need to make an election to deduct the £1,000 allowance instead of actual expenses incurred. Failing to make the election on time could result in tax being paid on a much higher figure.”