If your property income is less than £1,000 there is probably no need to report it to HMRC.
There are exceptions and Graham Buckell takes us through the traps.
“In the Budget 2016 the Chancellor announced two new exemptions for casual trading and property businesses to come into effect from 6 April 2017. The idea is that if your income is less than £1,000 it is exempt from tax and you do not even need to report it to HMRC. The legislation was in the original Finance Bill 2017 but was dropped due to the Election. It has been reintroduced in the current Finance Bill now wending its way through Parliament.
In principle, this seems like a good idea. Many people run very small businesses designed to supplement income from other sources. This saves taxpayers the hassle of registering with HMRC and making Tax Returns and saves HMRC the hassle of dealing with them for minimal returns in tax.
However, as ever, there are traps for the unwary.
Thankfully the cliff edge is not as abrupt as it could be. If income, and note it is income, not profit, exceeds £1,000 then it becomes reportable but one can elect for a flat rate deduction of £1,000 from income rather than claiming actual expenses. This election can be changed each year. This can apply to any business where expenses are less than £1,000.
Partnerships cannot claim this so, even if your spouse or friend is helping, put the business in one person’s name only.
If you already have a sole trader business and start a completely different one, the two must be combined.
If you run another business in partnership then your sole trader business is looked at in isolation.
Relief is denied if any income is derived from your employer, your spouse’s employer, a partnership in which you or a connected person is a partner or a close company in which you or an associate are a participator.
Distributions from a Real Estate Investment Trust (REIT) and income representing rent-a-room receipts do not qualify for relief.
Anyone with property income and interest costs cannot claim relief.
The income still counts for Universal Credit claims which undermines the record keeping saving. Representations have been made to align the UC rules with the tax rules but it is not yet known whether this will succeed.
If you would like to discuss this issue with our tax team, please do contact Graham at firstname.lastname@example.org.
As always, you are reminded that this article is generic in nature and you should take no action based upon it without consulting your professional advisor.