New income allowances may cause confusion

The Low Incomes Tax Reform Group (LITRG) have raised concerns that new income allowances could cause confusion for those who start work or rent property in the 2017/18 tax year.

By law, people have to notify HMRC of a new source of income, such as receipts from a trade or business, or rental income, by 5th October in the tax year following that in which the new source began. However, this could get confusing due to the likely introduction of the new trading and property allowances.

From 6 April 2017, those with rental and/or trading income (or miscellaneous income) below £1,000 will no longer have to tell HMRC about the income by the 5th October 2018 deadline or pay tax on it. If the trading or property income exceeds the allowance, they will need to notify HMRC and can choose whether to calculate their taxable profit in the usual way or by simply deducting the £1,000 allowance.

LITRG is concerned that, without appropriate publicity or guidance, some taxpayers may register for self-assessment and complete a tax return when they do not need to do so. Others with trading and/or property income above £1,000 may not realise that they need to register and complete a self-assessment tax return, which could subsequently result in significant penalties for late notification and filing.

LITRG Chair Anne Fairpo, commented, “We call on HMRC to be ready to make available very clear guidance on these changes and to publicise them sufficiently. Ideally, there should be worked examples and also an online calculator. It is also crucial that such information is available in hard copy format as well as online to help the substantial numbers of taxpayers who are either digitally excluded or find it difficult to engage with government online.”

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