HMRC has published detailed guidance on how to claim new annual tax-free allowances for property or trading income, a week after they were introduced and following complaints that many potential claimants were in the dark about the arrangements
Before the start of the new tax year, the Low Incomes Tax Reform Group (LITRG) warned of the risk that individuals could miss out because of a lack of guidance on the introduction of the allowance, worth up to £2,000 in total, saying this could limit take-up.
HMRC has set out guidelines explaining how individuals can get up to £1,000 a year tax-free allowances for property or trading income from 6 April 2017. If they have both types of income, they will get a £1,000 allowance for each.
The guidance states that if their gross trading or property income is below £1,000 and individuals are not registered for self assessment, they will not have to declare this income on a tax return. However, they must keep a record of this income.
Taxpayers who are already registered for self assessment, can claim the allowances by deducting them from their gross property or trading income on their tax return. They cannot deduct expenses if they can claim the allowance.
Taxpayers will not get the allowance if income is from employment, a partnership or company they own.
The property allowance is a tax exemption of up to £1,000 a year for individuals with income from property. If someone owns a property jointly with others, they are each eligible for the £1,000 allowance against their share of the gross rental income.
It is not possible to claim the allowance on income from letting your own home under the rent a room scheme.
The trading allowance is a tax exemption of up to £1,000 a year for individuals with income from self employment; casual services, such as babysitting or gardening; or hiring personal equipment, for example power tools.
The guidance states that individuals must tell HMRC if they have self-employment income over £1,000, or other income between £1,000 and £2,500, or over £2,500.
Anyone starting a new self-employed business who expects their gross income will not be more than £1,000, does not have to register for self assessment, but can still voluntarily register to pay Class 2 National Insurance.
If their gross income for the first tax year is more than £1,000, they must register for self assessment by 5 October in the business’s second tax year.
They can register if you make a loss and want to claim relief by filing a self assessment tax return.
HMRC Guidance on Tax-free allowances on property and trading income is here.
