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".
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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.