From the 6 April 2017, a trade and property allowance was introduced for individuals. If you have both types of income, you’ll get a £1,000 allowance for each.
The £1,000 trading allowance is an annual tax exemption for individuals with income from self-employment such as selling items on Etsy and eBay.
If you’re not registered for Self-Assessment then you won’t have to prepare a tax return to declare this income, although it is very important that a record of this income is kept in case HMRC ever ask you about it.
If you have made a loss, then you should prepare a tax return to either set the loss against other income in the year or carry this forward against future profits.
If you are already required to submit a tax return, then the allowance can be claimed by deducting the £1,000 from your trading income on your tax return. You can’t deduct expenses if you can claim the allowance.
You can still voluntarily register to pay Class 2 National Insurance via Self-Assessment.
The allowance is not available if your income is from employment, a partnership or a company you own.
Elizabeth has a job where she earns £27,000 a year. She also makes and sells clothes which she sells on Etsy, making £850 profit per year from this.
Prior to 6 Aril 2017, Elizabeth is required to declare her income from her clothes business on her tax return and pay tax on the profits at 20%.
From 6 April 2017, Elizabeth won’t need to tell HMRC about the £850 profit as it is under the £1,000 allowance. Therefore, she’ll pay no income tax.
Graham has a business making sausage rolls and selling these at farmer’s markets. His income is £15,000 a year and he has expenses of £700.
Graham will need to declare his income both prior to 6 April 2017 and after, but the tax will be different.
Before the 6 April 2017 Graham’s taxable profit will be £14,300, (i.e. £15,000 less the £700 of expenses.
After the 6 April 2017, Graham can deduct the new allowance of £1,000 from his income instead of using the actual figure of £700, giving him a lower profit figure of £14,000.
The property allowance is very similar to the trade allowance i.e. a tax exemption of up to £1,000 a year for individuals with income from property. This could be very beneficial if you let out a room occasionally on Airbnb.
If you own a property jointly, then each owner is eligible for the £1,000 allowance against their share of the gross rental income.
So, if your annual gross property income is £1,000 or less, you won’t need to tell HM Revenue and Customs or register for Self-Assessment, although you should submit a tax return if you a have made a loss to carry this forward to future years.
The £1,000 property allowance cannot be used in conjunction with rent a room relief.