Two little-known tax allowances could save you time and tax if you trade in a small way, or rent out parts of your home for less than £1,000 a year.
The first is called “trading allowance” and will be useful to people who buy and sell items on eBay or at car-boot sales, or who make a bit of money from freelance work like hairdressing, babysitting, writing or decorating.
If your turnover is less than £1,000 in a year then that will be free of tax.
The “property allowance” applies to income of up to £1,000 a year from renting out a room in your house – perhaps a holiday let for a few weeks in the year through an online agency.
It could also cover such things as renting out your drive for car parking or a garage for storage.
This property allowance is separate from the rent-a-room scheme, which allows homeowners or tenants to let a room in their home to a lodger for up to £7,500 a year tax-free.
The property allowance can’t be used for the same letting as the rent-a-room scheme.
The new allowances apply in 2018/19 and also back to 2017/18.
They have had little publicity; partly because the law was passed last autumn and then applied retrospectively to April 2017. If your turnover in the tax year from either of these activities is less than £1,000 you do not need to declare that income or pay tax on it.
It is also exempt from Class 4 National Insurance contributions. If your turnover is more than £1,000 on either, then you must register for self assessment and declare the income. You can then pay tax in one of two ways. Deduct the £1,000 and add the balance to your taxable income.
If you want to do that, you must make a positive choice – called an election – to do so. Alternatively, you can ignore the new allowance and work out your profit by deducting your costs and expenses from your turnover and pay tax on the excess.
The rules are inevitably more complex than they seem, so before using either scheme, check online at www.gov.uk and search for “trading income”.