Are You Claiming Your Allowances?

A recent and welcome tax relief is the £1,000 allowance for property and trading income which was introduced from 2017/18 onwards.

The purposes of this relief is to allow a flat £1,000 allowance for expenditure for any property or trading business. Taxpayers have a choice of either claiming the allowance or calculating the profits of the business under normal principles but it certainly benefits people in the following situations:

Where expenses are under £1,000; or
Managing paperwork to calculate the allowable level of expenses is a hassle.

Typically this income will benefit people with secondary incomes from things such as honoraria for acting on a committee, letting property on an occasional basis through sites such as Airbnb or small micro-businesses.

The allowances for trades and property are separate, so it is possible for an individual to claim a £1,000 allowance against each type of income.

Unfortunately, as is often the case with apparently positive tax simplification measures, the conditions to obtain the relief are reasonably complex and can lead to discrepancies in the results between apparently similar situations. The main issue here is that the trading allowance applies to sole trade income and income from all trades must be aggregated. A self-employed electrician, who does a small amount of work marking exams at a local technical college, for example, would not benefit from claiming the allowance (on the assumption his business expenses would be far in excess of £1,000), whereas an employed teacher who does exam marking during the summer holidays would be able to.

Whilst earnings under £1,000 from small additional activities are can now be effectively tax free, it remains imperative to monitor your income from all sources and ensure that your register with HMRC to complete tax returns if you are required to do a tax return by virtue of having taxable income beyond an employment taxed at source under PAYE.

As part of our tax return preparation service, CB Reid monitors small trades and property income sources to assess whether claiming the allowances results in a saving to our clients or not.

If you’re wondering whether you’ve claimed the allowances that are available to you, please get in touch and we can investigate.