Taxpayers told to be wary of new trading and property allowance
The Low Incomes Tax Reforms Group (LITRG) has urged the tax authority to publicise the new income allowances when they come into force to prevent confusions as to who is supposed to register for self-assessment.
Under current rules, taxpayers must declare every penny from each source of income, either by self-assessment at the end of the tax year, or through their employer’s PAYE payroll.
But this is going to change in the 2017/18 tax year. The new trading and property allowance will mean that, from 6 April this year, people who earn income through trading online, freelance work, and/or letting a property short-term, will no longer have to pay tax – as long as total profit falls below £1,000*.
It also means that taxpayers who earn additional income under £1,000 no longer have to notify HM Revenue & Customs (HMRC).
However, those that do earn above the threshold must still inform HMRC using the self-assessment system.
LITRG said it is concerned that without publicity or guidance, some taxpayers may register for self-assessment and complete a tax return when they do not need to do so.
It is also important that self-assessors “make an election” to use the allowance – or else they risk being taxed on the whole profit element – not just that over £1,000.
LITRG Chair Anne Fairpo said: “We call on HMRC to be ready to make available very clear guidance on these changes and to publicise them sufficiently. Ideally, there should be worked examples and also an online calculator. It is also crucial that such information is available in hard copy format as well as online to help the substantial numbers of taxpayers who are either digitally excluded or find it difficult to engage with government online.”
*The property allowance is separate from the trading allowance. Taxpayers will be able to make full use of each, granting a total of £2,000 additional tax-free income.