Two new tax allowances are expected to benefit individuals who receive small amounts of income from selling goods or services, or from property.
The new annual tax allowances – a £1,000 trading allowance and a £1,000 property allowance – are designed to provide simplicity and certainty regarding the income tax obligations of such individuals.
Under the plans, those with property or trading income below the level of the allowance (before expenses) will no longer need to pay tax on that income or declare it to HMRC. Individuals with relevant income above the £1,000 allowance will have the choice, when calculating their taxable profits, of deducting the allowance from their receipts, instead of deducting the actual allowable expenses.
The elections for the trading or property allowance will be made independently of each other and apply for each particular tax year.
The new allowances will apply to all types of property and trading income of an individual. The trading allowance also applies to certain miscellaneous income from providing assets or services, meaning that in some cases it will no longer be necessary to decide if the activity amounts to a trade.
The allowances will not apply to partnership income from carrying on a trade, profession or property business in partnership. The property allowance will not apply to income on which rent-a-room relief is received.
Anti-avoidance legislation will prevent the allowances from applying to income of a participator in a connected close company or to any income of a partner from their partnership.
Who will benefit?
The trading allowance is most likely to benefit individuals or ‘micro-entrepreneurs’ who receive small amounts of income from providing goods or services. Previously, these individuals would have been required to include details of this income on their tax return and, if applicable, pay any tax due.
Meanwhile, the new property allowance is likely to be welcomed by those who, for example, receive income from renting out their garage or a parking space.
The measures were originally due to take effect from 6 April 2017, but have currently been postponed and are expected to be reinstated after the General Election.
For more information or for further advice on minimising your tax liability, please do get in touch.