New £1,000 allowances for trading and property income may not be as beneficial as it would first appear.
A surprise announcement in the Budget was that the Government will introduce a new £1,000 allowance for trading income and one for income from property.
Individuals with property income or trading income below £1,000 will no longer need to declare this or pay tax on that income.
Those with income above the allowances will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance.
The measures will affect individuals who make up to £1,000 from occasional jobs or renting a driveway who will no longer need to pay income tax. Therefore these allowances are not expected to impact a significant number of individuals.
However, this change steers the UK towards simplifying taxation as we move to digital accounts for individuals.
The Government also continued with its commitment to increase the personal allowance to £12,500 and the higher rate threshold to £50,000, by the end of this parliament.
The income tax personal allowance will increase from £11,000 in 2016/17 to £11,500 in 2017/18.
The higher rate threshold will increase from £43,000 in 2016/17 to £45,000 in 2017/18. The Class 4 NI contributions upper earnings/profit limits will align to the higher rate threshold and will therefore also increase for 2017/2018.
Also mentioned in the Budget was the abolishment of Class 2 NI from April 2018. The Government has committed to simplifying the NI system and this is a step closer.
Currently, self-employed individuals pay Class 2 NI if their profits exceed £5,965, at a flat rate of £2.80 per week normally collected quarterly. Class 2 NI counts towards contributory benefits such as the state pension.
The Government will publish its response to the consultation on benefit entitlement for the self-employed and how the self-employed will access contributory benefits after April 2018 in due course.
Rajiv Vadgama is tax director at RSM UK