Tax Update: new tax year – new tax allowances

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Reducing reporting requirements for ‘micro-entrepreneurs’

Paul Yates | Towers + Gornall
 

In his 2016 Budget speech, George Osborne announced two new annual tax allowances for individuals to be introduced from April 2017, one for trading income and one for property income.

These new allowances are both set at £1,000 and where they cover all of an individual’s relevant income (before expenses) then they will no longer have to declare or pay tax on this income. Those with higher amounts of income will have the choice, when calculating their taxable profits, of deducting the allowance from their receipts instead of deducting the actual allowable expenses. The trading allowance will also apply for Class 4 national insurance contribution purposes but neither allowance applies to partnership income received from carrying on a trade, profession or property business.

The purpose of the new allowances is to provide simplicity with regard to small amounts of income derived from providing goods, services or property and is part of HMRC’s attempts to simplify the UK tax system, indeed HMRC feel these measures could benefit up to around 700,000 eligible taxpayers.

Trading Allowance

Currently small amounts of trading income from providing services or eBay trading, for example, must be declared to HMRC and are taxable when not covered by an individual’s personal allowance (£11,500 from April 2017). Under the new trading allowance, income from trading which does not exceed £1,000 will no longer need to be declared to HMRC. Where trading income exceeds £1,000, traders will have the option of working out their taxable profit in the usual way by deducting expenses or alternatively they can choose to deduct the £1,000 allowance from their gross income. This will be beneficial if trading expenses are less than £1,000 in the year or if the trader simply wishes to avoid the hassle of recording expenses.

Property Allowance

The property allowance works in broadly the same way as the trading allowance. If an individual’s annual income from property does not exceed £1,000 there will be no requirement to declare this to HMRC. Where the income exceeds £1,000, taxpayers will have the option of computing their profit in the usual way by deducting relevant expenses or by deducting the £1,000 property allowance. As with the trading allowance, this will be worthwhile if actual expenses are less than £1,000 or the individual is looking to save time and effort.

Summary

If you have trading or property income of less than £1,000 per annum, from 6 April 2017 you will no longer be required to pay tax on it or declare it to HMRC.

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