A new tax allowance was introduced from April 2017 (called small trader relief) that not many people know about, so if you have a small amount of self employed income or even rental income, you may want to make use of it for 2017/2018, or evening 2018/2019 as it still exists – I know, jumping ahead, but you will need to keep appropriate records. What is this new allowance? I hear you say. Listen up
Transcript of the Video
Great news. From the new tax year, on the 6th of April, 2017, there is something called a small trader relief of £1,000. There’s also a £1,000 property income relief.
Trade can be buying and selling things on eBay. Or simply just a bit of self employment. Property income might be the odd nights of Airbnb, or the odd lodger popping in and out.
What does this mean?
So if you only had a turnover of £1,000 in that tax year, you don’t have to declare it on your tax return. You just tick the box to say you’ve had £1,000 of income, and that’s it, nothing else needs to be done.
So, why is that good news?
Well, the odd bit of PA work you might want to do. The odd bit of filming that you might think about running some videos through for somebody. A little tiny bit of trading on eBay won’t hurt anybody. Well, that’s the view of HMRC as well. Why do they want to chase down small amounts when there’s bigger fish to fry? Now there is a slight problem with that, in that you might have £1,000 worth of income, but how much does it cost you to generate that income? Did you buy and sell on eBay, but you sold at a loss. If so, this does not allow you to offset any costs, and therefore create losses. So you’ll have to think about, was it just income, and there was no costs incurred? Or should I really declare this as a kind of self employed business.
You could earn more than £1,000 but have very little costs. So what you can do then, you can elect to have that £1,000 allowance. Offset it on your more than £1,000 income, and just pay tax on the difference.
There’s an example below this video on how this works, where I’ve assumed somebody has rented their driveway space, or their parking space for Wimbledon. See how it works, and how much tax they could save if they used that election.
The Woo Hoo moment
So, £1,000 of self employed odd income. £1,000 of odd property income. No declaration, keep it tax free, and laugh your way to the bank.
Want to know more?
If you want to wade through a chunk of HMRC/Gov details, you can find it by clicking >>> HERE <<<.
I was going to make a play on words about the Lost Boys in Peter Pan, but could not think of anything.
As people start to prepare their tax return, the call on self employed income & expenses can be time consuming. But, you need to also declare your employed income if you had any. If you have had several jobs, then tracing your P45 and then any final P60’s can be a nightmare, so don’t leave this until the last minute.
Can’t find your P45 or P60? Oopsie – this may help.
Why do I have to pay an amount of tax for next year now?
Why is my bill so high?
This 90 second video hopefully explains the payment on account situation and why/how it comes about.
Essentials of transcript:
HMRC would like every person to be employed and paying tax on a monthly basis. The self-employed don’t get the opportunity to do that and they pay their taxes on the 31st of January, which means HMRC can wait mainly up to 18 months to get their money. The decision was made many years ago that, for the self employed, if they owe HMRC more than a £1000 of income tax & class 4 National Insurance, then they have to pay a further 50% as a payment on account at the same time paying the main tax bill. On the 31st of January, not only are you settling the in year tax bill, you’re also paying 50% of the same amount as a payment on account for the following year.
However, it doesn’t end there. What you also need to do is pay a further 50% of your in year tax bill on the 31st of July. So therefore effectively you’ve paid 100% of your potential tax bill ahead of when you actually have to file it. The good news is though, if you file following year your tax return early you will discover whether you have to make the July payment on account and potentially you could get the money back. When you do pay the following years tax bill, you need to remember to offset the payment on account already made, as HMRC won’t remind you of this.