Muras Matters: Micro-Entrepreneurs Annual Allowance

Micro-Entrepreneurs Annual Allowance


It was announced in the May 2016 Budget that from 5 April 2017 two new £1,000 tax-free allowances will come into effect, aimed at reducing the confusion around income reporting for micro-entrepreneurs. This will benefit very small businesses such as online traders and those receiving small amounts of rental income.


Under current rules if a taxpayer undertakes some casual eBay trading for example, they should declare any profit arising as taxable income. However, with the new allowance an individual can generate income of up to £1,000 without having a requirement to declare this. Should they earn over this amount within a given tax year then, from 5 April 2017, they can simply deduct the allowance to arrive at their reportable profit to declare to HMRC.

A taxpayer will have a choice of whether they want to deduct the allowance or deduct allowable any actual expenditure incurred when calculating their trading profit and are free to choose the most beneficial method. This “trading” allowance will apply to many odd jobs such as gardening, dog-walking etc.

The “property” allowance will work in a similar way allowing taxpayers to earn £1,000 in income from a rental property tax-free. As it is aimed at micro-entrepreneurs, the scope of the allowance will extend to those who rent out their driveways or parking spaces for example, rather than being limited to a traditional landlord who rents out a whole property. Again the individual has a choice of whether to deduct the £1,000 allowance from rental income or any actual expenses incurred.

The allowances can be used together so it will be possible to receive up to £2,000 in additional income without a tax liability arising. The new rules will come as a welcome relief for those who receive small amounts of relevant income and were previously unsure whether it needed to be reported.

If you would like further information regarding these allowances please contact our Tax Director, Jenny Marks.

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