How the 2017 Trading and Property Allowances Will Affect Businesses In Brighton

With excellent transport links to the capital, excellent digital connectivity, a thriving small business community and a superb quality of life, we’ve always known that Brighton is a great place to start a business.

Although colloquially better known for gay pride, fish and chips and sticks of rock, according to the Association of Accounting Technicians Brighton is now officially the best place in the UK to start up a business. The fertile environment of Brighton’s unique character is because it is driven by one of the highest numbers of start-ups and greatest densities of small to medium-sized businesses in the country.

But being a micro-entrepreneur, start-up or small business can be difficult, even within a strong like-minded business community. Part of that is due to the lack of resources to cover vital financial and administrative duties, meaning that your money and time are consistently stretched. In the 2016 budget, George Osborne announced the introduction of two valuable new tax allowances, that would usher in financial breaks for a number of small-time property and trading businesses based in Brighton and beyond.

These breaks, which became operational on April 6th, 2017, minimize the tax obligations on small incomes and drastically lessened the burden of the previous administrative and reporting requirements by changing the parameters of what needs to be declared to the HMRC.

Despite the potential annual savings on offer, specifically in Brighton where there are a high number of eligible taxpayers, we’ve noticed a distinct lack of business owners coming forward to ask for more information. Considering the scarcity of information released by the government concerning participation in the new Trading and Property Allowances, we can only assume that this is because only a small number of Brighton businesses are aware of the allowances and the potential effective benefits.

What are the 2017 Trading and Property Allowances?

The Brighton economy is driven by a thriving community of micro entrepreneurs and small business owners that work both within the trading and property sectors. From an art scene centred around independent artists on Gloucester Road and Bond Street to the boutiques in the North Laines, much of what to do in Brighton is provided by entrepreneurs and small business owners.

The Trading and Property Allowances aim to reduce the amount of time, effort and expenditure taxpayers working within trading and property spend on calculating expenses and filling out self-assessment returns.

If you’re a business owner in Brighton, The key figure to remember is £1000.

The new legislation introduced in the Finance Bill 2017 added a new Part of ITTOIA 2005, which offered relief for two new annual trading and property tax allowances, each worth £1,000.

If your income from a trading or property business is £1,000 or under, before expenses, you will no longer have to declare or pay tax on this income. If you generate higher incomes you can choose to deduct the allowance from your receipts, after calculating taxable profit, instead of deducting the actual allowable expenses.

The allowance also counts for Class 4 National Insurance Contribution.

Although the allowances came into operation on 6 April 2017, as long as your previous tax year ended after April 6th, you can still participate in the allowance scheme for the 2017-1018 tax year. Property incomes will be on a tax year basis only.

How the Allowances Work

The operation of the allowances depends upon whether the income for either the trading or property allowance exceeds the £1,000 allowance.

If your trading or property business in Brighton generates an income less than the allowance, then full relief will be given so the income is not charged to tax. Full relief is automatically given unless you elect otherwise, on, or before, the anniversary of your usual self-assessment filing date for the tax year for which the election is made.

The allowance is essentially all or nothing, it cannot be used to preserve entitlement to the allowance against miscellaneous income whilst simultaneously getting normal relief for expenses from one or more trades.

On the other hand, if the income of your Brighton based trading or property business does exceed the trading allowance, you can elect (within the same timeframe) to pursue an alternative method of calculating the income. You can opt for ‘partial relief’ by disregarding the usual rules that would otherwise apply in calculating the profit. Partial relief refers to receiving a flat deduction of £1,000, without needing to keep or provide any records of the expenditure.

It is important to keep abreast of the yearly provisions of the allowances, as these regulations are only for this current tax year, 2017 to 2018 and may be subject to change in subsequent years.

There are, however, some universal exclusions. If you are benefitting from “rent a room” relief, or have a partnership income from a trade or property business, the allowance is not applicable.

Trading

The trading allowance is available is applicable under the following two terms, with the exclusions detailed above still in effect:

  • The new trading allowance will cover all kinds of activities, such as babysitting, gardening and hiring personal equipment like power tools. For example, if you make £900 a year selling homemade cards in a shop in North Laines, your income will now not need to be disclosed to the HMRC and fully covered by the allowance.
  • Anyone or more source of miscellaneous income - any income that does not fall within other provisions of income regulation but is subject to income tax.

Again, if your relevant income does not exceed your trading allowance for the tax year, and you remained opted into full relief, then the profit of your relevant business and the net amount of relevant business is nil and need not be reported to HMRC.

Property

Brighton has one of the fastest growing property markets in the UK, leaping over 40% in price in just the last decade, outpacing the average national growth by 15%. Hot on the tails of the buy to sell property market is the short and long-term rental market. Specifically in areas like Kemp Town, where the majority of flats and houses are all rentals catering to young professionals and students - or close to the central hub of Brighton’s bars and restaurants.

Those making small incomes on renting out properties, whether to a private tenant or to tourists making the most of a central spot to get around Brighton on Airbnb, can expect the allowance to work similarly to the trading allowance, with a few exclusions, listed below, to bear in mind.

The allowance will not be available under the following circumstances;

  • If you are already the recipient of a tax reduction in the place of non-deductible costs of mortgage interest
  • If a ‘denial of relief’ occurs, where the income is paid by, or on behalf of, a person who employs or is connected in some way to the recipient