Two new £1,000 allowances have been introduced for the 2017/18 tax year, these are designed to take out anyone earning £1,000 of property income or self-employed income from the need to complete a tax return. For those earning over £1,000 of property or self-employed/trading income you have a choice as to whether you deduct the £1,000 allowance or deduct the costs incurred in relation to your income. Therefore it is not possible to claim expenses, capital allowances or relief under the Rent a Room Scheme if the allowance is claimed. Note that where a house is owned by multiple persons i.e. spouses or siblings each person gets a £1,000 allowance to put against their share of the property income.
Example: A husband and wife own a flat which they rent out for £400 per month. Their share of the property income is £2,400 each. If the expenses relating to the property are less than £2,000 a year (i.e. a 50% share would be £1,000) then the husband and wife would be better claiming the property allowance rather than claiming for the associated expenses. They would therefore only have to pay tax on £1,400 of the property income.
Where we complete your return for you we will choose the most beneficial option for you. If you complete your own tax return using the HMRC website then in the property pages you need to fill in the box which reads “Property income allowance” under the “total rents and other income from property” box.
An example of where the trading allowance could be claimed is say a tradesman who is employed but also does small jobs for his friends outside of his work, which required little materials cost. In total for the year he received £1,500 from these jobs, he would have to pay tax on only £500 of this income as the trading allowance of £1,000 would be claimed. Note that if multiple trades exist it is a total of £1,000 that can be claimed (you do not get £1,000 to set off against each trade).
Please also note that neither allowance can be used to create a loss, i.e. if you have £700 of income you cannot claim an allowance of £1,000 as this would create a loss of £300, therefore you would only be able to claim £700 of the allowance if you have included the income on your tax return.
Where we complete your return for you we will choose the most beneficial option for you. If claiming yourself through HMRC’s self assessment programme, in the self employed pages, you will need an entry in the “Trading Income Allowance” box (shown under the Turnover earned by your business box).
Audit Manager
Carlisle Office
