The Trading Allowance
Full Relief: From 6 April 2017, a trading allowance of £1,000 has been introduced for individuals. Income from a partnership is excluded. The allowance is against receipts with no deduction for expenses and no relief for losses. Where receipts are less than £1,000, the income does not have to be declared. A trader may wish to elect for this full relief not to be given, for example where receipts are below £1,000 but expenses are more than £1,000, resulting in a loss. Without the election for the relief not to apply, the loss could not be taken.
Partial Relief: For receipts above £1,000, the normal basis of calculating trading profit or miscellaneous income can apply or “partial relief” can be elected whereby the trading allowance of £1,000 is deducted from receipts but expenses cannot be deducted. It is possible to choose on a year by year basis. In a year when expenses exceed £1,000 an individual may elect for the relief not to apply so that full relief for the expenses can be given.
The Property Allowance
From 6 April 2017, a property allowance of £1,000 has been introduced for individuals. This is in addition to the trading allowance and it works in a similar way. However, where Rent-a-room relief is claimed or could be claimed, the property allowance is not available.
Who will benefit?
The allowances will be of benefit to individuals with relatively small amounts of expenses and will also make things simpler for individuals selling on eBay and/or receiving ad hoc amounts from Airbnb rentals.
Cash basis or GAAP accounting
For the trading allowance, the £1,000 allowance is given in both cases. However, in the case of full relief, if accounting on a GAAP basis would show income above £1,000 but accounting on a cash basis would show income to be below £1,000, then the cash basis is assumed just for this purpose. From 2017/18, the cash basis now applies to property businesses with receipts not exceeding £150,000 a year unless GAAP is elected.