People who make extra cash by selling on eBay, renting a room out on Airbnb, or through odd jobs will benefit from two new £1,000 tax breaks from April 2017.
Under plans outlined in the 2016 Budget today, two new allowances, each of £1,000 a year, will apply to "micro-entrepreneurs".
- One allowance will apply to those who earn extra income through "occasional jobs", eg, activities like giving lifts in their car, sharing power tools or selling items online.
- A second allowance will apply to property-related income, for example through renting out a room, driveway or loft storage.
The new allowances mean that from April 2017 you won't have to declare the first £1,000 earned through each source. Those who earn more than £1,000 through either source "can benefit by simply deducting the allowance instead of calculating their exact expenses".
Chancellor George Osborne says the allowances provide a "tax break for the digital age", and promised there would be "no forms to fill in, no tax to pay".
Can you deduct expenses from your earnings before claiming the new allowances?
No – these allowances apply strictly to income earned, and expenses aren't factored in.
If you do want to deduct expenses from your earnings, you'll need to go through the normal self-assessment route. If you earn more than £1,000, you've a choice – you can either choose not to pay tax on the first £1,000 instead of calculating your exact expenses, or you can self-assess as normal, deducting any relevant expenses.
What counts as an "occasional job"?
A Treasury spokesperson says there's no specific definition of what "occasional jobs" will be covered by the extra income allowance, but it could include a wide range of activities – everything from car-sharing to baby-sitting.
Can a couple renting out a room both take advantage of the property income allowance?
This point is unclear – we've asked the Treasury and a spokesperson told us the “finer details” are still being worked out.
What about the 'Rent a Room' scheme?
The allowance relating to property income will operate alongside the existing Rent a Room scheme, which currently allows people renting out their bedrooms to not pay tax on the first £4,250 they earn each year.
The Rent a Room allowance is set to rise to £7,500 in April 2016. Once the new property-related income allowance comes into force, you'll only be able to claim it in addition to the Rent a Room allowance if you're earning from a separate source of property-related income, eg, renting out your driveway in addition to renting out a room.