A piece of tax simplification that is to be welcomed is the introduction this year of two new annual tax-free allowances for property income and trading income.
In both cases, the tax free allowances effectively exempt from tax:
- Property income where the total gross receipts is less than £1,000
- Trading income where the total gross receipts is less than £1,000
It is important to note that:
- The £1,000 refers, in both cases, to the gross receipts and not profit after deducting expenses.
- Records of the income received must be maintained even if it is not reportable.
- If an individual receives a small amount of income from each source then both allowances can be claimed.
- The allowance does not apply to income from employment or income from a partnership.
- If a property is let jointly, however, then each person can use it against their share of the income.
- It does not apply to receipts taxed under the “Rent a Room” scheme.
Therefore, the intention is to exempt from tax, and therefore avoid the need to register for self-assessment, people receiving small amounts of casual receipts.
If the individual to whom the allowances relate are registered for self-assessment then they can claim the allowance by deducting them from gross income on their tax return. If they do so, however, then they cannot claim any expenses, meaning that they may lose the benefit of claiming tax relief in the future on any losses incurred.
If the individual to whom the allowances relate are not registered for self-assessment then they need not register. If it is the first period of trading then if their gross income exceeds £1,000 and they have not registered they have until 5th October following the end of the tax year to register for self-assessment.
For more advice on our Personal tax services for individuals in Warrington, Cheshire.