Background
Traditionally, at this time of year, many young people have taken on part time jobs in retail or hospitality to earn money through their summer break. However, with these industries being hard hit over the last 18 months, some may have looked at other opportunities created by lockdown as an alternative source of income. Jobs such as pet sitting or walking for those owners who are now going back to work, gardening work for those who have grown to appreciate their outside space or offering tutoring to children who may have suffered during home learning are all popular examples. Equally many who were furloughed over the past year may have undertaken their own similar casual work or set up as eBay or Etsy traders for example to supplement their income.
It is important to note that doing these odd jobs or casual trading does mean that individuals will be self-employed for tax purposes. However the good news for very small traders is that they are able to earn up to £1,000 per tax year without having to report it to HM Revenue & Customs (HMRC).
Similarly for those individuals who may also have started to rent out spare property, perhaps through Air BnB for example, there is also a tax-free £1,000 allowance.
Detail
Since April 2017 two £1,000 tax-free allowances have been available to benefit very small businesses such as online traders and those receiving small amounts of rental income.
With the “trading” allowance an individual can generate income (before expenses) of up to £1,000 without being required to declare this to HMRC. Should they earn over this amount within a given tax year the individual has the choice of whether they want to deduct the allowance or deduct any actual allowable expenditure incurred when calculating their reportable trading profit. They are free to choose the most beneficial method. This “trading” allowance will apply to many odd jobs such as those referred to above.
The “property” allowance works in a similar way allowing taxpayers to earn £1,000 in income from a rental property tax-free. Since it is aimed at micro-entrepreneurs, the scope of the allowance extends 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 instead deduct 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. Whilst the rules have been in place since 2017 with the potential entrepreneurial spirit many will have shown over the past year many more individuals may now be able to take advantage of these allowances. They may well come as a welcome relief for those who receive small amounts of relevant income and were unsure whether it needed to be reported.
If you would like further information regarding these allowances please speak to your usual contact at the firm or contact our Tax Director, Jenny Marks.
Our Current working arrangement – We remain ‘Open for business’
Our staff are gradually returning to office based working, whilst continuing to work from home at other times. They can still be contacted in the usual way either via email or by calling the office number where reception will divert your call to the appropriate staff member.
To see our other news items please visit our Muras Baker Jones – Blog.