Low income - the £1000 allowance explained
From April 2017 HMRC introduced a new £1000 individual tax allowance.
Here we explain what's covered, and what it means
For the tax year 2017/18 and on, the UK Government introduced two new annual tax allowances for individuals of £1,000 each, one for trading and one for property income. The trading allowance will also apply to certain miscellaneous income from providing assets or services. These new allowances will take effect from the tax year 2017 to 2018, and are relevant for individuals who receive small amounts of income from providing goods, services, property or other assets.
What does it mean?
Where the allowances cover all of an individual’s relevant income (before expenses) then they will no longer have to declare or pay tax on this income. Those with higher amounts of income will have the choice, when calculating their taxable profits, of deducting the allowance from their receipts, instead of deducting the actual allowable expenses. The trading allowance will also apply for Class 4 National Insurance contribution purposes.
The new allowances will not apply to partnership income from carrying on a trade, profession or property business in partnership.
The allowances will not apply in addition to relief given under the Rent-a-Room Relief legislation.
Why is it being introduced?
Each is aimed at relieving the taxpayer of having to report nominal amounts of income (which HMRC would, in turn, find it very cost-ineffective to process and collect the tax thereon).
In many ways it's similar to the "Rent-a-Room allowance, in that;
- Where gross income receipts are at or below the respective allowance, then both income and expenses are ignored; (so-called “full relief”)
- Where gross income receipts exceed the respective allowance, then the taxpayer may elect to deduct the allowance from the gross income, but will then have to forego claiming any actual expenses