The addition of recent allowances can mean we pay less tax in the UK. The new allowances include a £1,000 tax allowance for trading income and a similar sum for property incomes. These allowances have been introduced for the 2017/18 tax year.
The Marriage Allowance has been available for a few years but has not been taken up by many people who qualify. Fortunately a claim can be backdated to include the tax years from 5th April 2015, a maximum claim would be in excess of £650 covering the three years.
The government have an objective to simplify the UK tax system and the Trading Allowance and Property Allowances apply to Income Tax obligations on small amounts of income arising from providing goods, services, property and other assets. It is stated that around 700,000 taxpayers could benefit from these measures.
Trading Allowance of £1,000 in 2017/18
Good news for many of us who earn from a side business. Some seven and a half million in the UK top up their main incomes with additional income from a side business, although this legislation is aimed at those making small extra incomes. It does however recognize, reward and encourage people who have the entrepreneurial spirit.
From 2017/18 if we are selling less than £1,000 a year on sites such as eBay or selling goods at car boot sales, earning from baby sitting, helping with bookkeeping, tax returns, websites or other means of earning small amounts of income, we no longer have to declare this income to the taxman.
If we exceed the £1,000 sales level we will still need to notify HMRC and complete a self assessment tax return. At this level we have two options available to us:
- declare the total income and deduct expenses in the usual way
- or, elect for Partial Relief whereby we deduct the £1,000 trading allowance from the income total and declare that figure without deducting any expenses on all the income.
No Trading Allowance can be claimed for partnership trades or certain trades involving close family or their employers and business associates. The allowance will not apply if Rent-a-Room relief is also being claimed.
The trading allowance will affect Class 4 National Insurance contributions. Current allowances and rules should be checked with the .gov.uk website.
Property Allowance of £1,000 in 2017/18
The new Property Allowance provides for full relief when income from a property business is no greater than £1,000 in the tax year.
If the income exceeds £1,000 we need to notify HMRC and complete a self assessment tax return. At this level we have the option to elect for Partial Relief. Partial Relief allows us to deduct £1,000 from our property income for the tax year but we cannot deduct any expenses associated with all of that income.
This allowance will not apply to partnership incomes and also cannot be claimed in addition to Rent-a-Room relief.
Current allowances and rules should be consulted at the .gov.uk website.
Over the last three years couples claiming the full Marriage Allowance have saved well in excess of £650 from their tax payments. The good news is that you can backdate a claim to include any tax year from 5th April 2015.
The Marriage Allowance lets you transfer 10% of your personal allowance to your husband, wife or civil partner if they earn more than you. The lower earner must have an income which is less than their personal allowance for that tax year.
You can apply for Marriage Allowance if all the following apply:
- you are married or in a civil partnership
- you don’t earn anything or your income is below the personal allowance level
- your partner’s income is within the 20% tax band.
If you or your partner were born before 6th April 1935 it may be preferable to claim the Married Couple’s Allowance instead.
You are advised to check all current allowances at the .gov.uk website.
Claiming Self-Employed Simplified Expenses
HMRC have set out some flat rate expenses which you can use for your Self Assessment Return calculations instead of working out the actual business costs for that item of expenditure. Simplified Expenses are available for sole traders and partnerships providing there are no companies included as partners. Simplified Expenses cannot be used by limited companies.
The expenses covered are:
- Business Cost for Vehicles
- Working from Home
- and Living in Your Business Premises
You will need to record your business miles travelled in each vehicle, the hours you spend working from home and how many people live at your business premises over the year and the portion of the year they each live there.
Business Costs for Vehicles
You cannot use Simplified Vehicle Expenses for a vehicle if you have already claimed capital allowances or you have included the cost of the vehicle as an expense.
The flat rate vehicle expense to be claimed is 45p per mile up to 10,000 miles and 25p for each mile thereafter. Motor cycles can be claimed at 24p per mile. Having made the calculation you include this sum as the motor vehicle expense when working out your profits.
Whilst simplified expenses for vehicles does indeed simplify your record keeping you may find it beneficial tax-wise to calculate and claim the actual expenses. The difficulty is that this decision will have to be made at your first tax return involving the vehicle when you could possibly include the whole cost of the vehicle as an expense, you will then be excluded from using the flat rate for that vehicle for as long as you use it within the business. On the other hand if you decide to use the flat rate you must continue to use the flat rate for the vehicle for as long as you use that vehicle within the business.
Working From Home
The flat rate you can include in your business expenses for the use of your home is calculated on the hours you work within your home each month. The amounts you can include are; for 25 to 50 hours within the home per month the allowance is £10 per month; 51 to 100 hours the allowance is £18 per month; and over 100 hours the allowance is £26 per month.
These flat rates are used instead of working out the proportion of personal and business use for utility bills etc. on the premises.
The flat rate DOES NOT INCLUDE TELEPHONE OR INTERNET EXPENSES. You will continue to claim the business proportion of these bills within your expenses.
Living in Your Business Premises
This would apply to guesthouses, bed and breakfast, small care homes etc. In this case we need to calculate the total expenses for the premises and then subtract an amount for your personal use. The flat rate is based on the number of people living on the premises as follows:
- 1 person on the premises then £350 per month has to be deducted for personal use
- 2 people and the deduction is £500 per month
- and 3 people the deduction is £650 per month
If someone lives at the business premises for part of the year, you deduct only the relevant flat rate for the months they live there.
If you have any comments or questions on this subject, please include them in the area below and I will be very pleased to help you out.