In recent years HMRC have been trying to clamp down on people running small online businesses in their spare time and have used a number of initiatives to encourage people trading online to register as businesses even if they are only trading on a very small scale. At the same time, HMRC have also been requesting more powers to track small online businesses, asking for direct access to data from sites like Etsy, eBay, AirBnB and Amazon in order to work out who is trading online and whether they are registered as a business. Whereas many people running an online business in their spare time comply with paying tax on their profit, some feel its unfair to be treated in the same way as larger firms who trade full-time and have more resources with which to comply.
In a bit of a useful u-turn, HMRC has announced a new ‘trading allowance’ for individuals so that people can operate small online businesses without needing to pay tax or register. They stated: “The rapid growth of the digital and sharing economy means it is becoming easier for more and more people to become ‘micro-entrepreneurs’. However, for those making only small amounts of income from trading or property, the current tax rules can seem daunting or complex.”
So commencing April 2017, individuals running small online businesses will have a £1,000 trading allowance. HMRC state: Individuals with property income or trading income below the level of allowance will no longer need to declare or pay tax on that income. Those with relevant incomes above £1,000 can benefit by simply deducting the allowance instead of calculating their exact expenses.”
This new concession could be a real boost to small online home based businesses as well as for entrepreneurs looking to start small and build up to a full-time business. It is not unusual for entrepreneurs to start their business in their spare time alongside their full-time job. This enables the smart entrepreneur to establish parameters and make changes and test initial trading without the need to register their business or worry about paying the tax on them during this initial embryonic stage.
A £1,000 allowance will not go far for many businesses but it will help offset the costs for occasional traders and make it easier for people to get started with their online business. Between now and April 2017 people still need to register their business, no matter how small. From April 2017, there will be no need to register the businesses until the £1,000 allowance is exceeded, at which point they must register.
This article is for information only and is provided in all good faith as being correct at the time of publication. Please take professional advice before entering into a legally binding agreement of any sort and in managing your financial affairs, especially when it comes to matters related to HMRC
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