In addition to the current £5,000 tax-free dividend allowance and the personal savings allowance of up to £1,000 there will be two further tax-free allowances starting from 6 April 2017.
These new allowances mean that individuals doing a small amount of self-employed work or receiving a small amount of rental income will not need to report such income and consequently may fall outside self-assessment.
Note that the £1,000 allowances are the gross amounts that will be tax-free each year.
Where the gross income exceeds £1,000 there will be the choice of paying tax on the excess over £1,000 or deducting allowable expenses in the normal way.
Here’s an example of this:
Mr Nikon has a full-time employment but also has a part-time photography business earning £1,500 a year with £800 of business expenses.
Rather than paying tax on the net profit of £700 the new system will mean that he can be taxed on only £500 (£1,500 less the £1,000 allowance).
If his gross income was below £1,000 it would be tax-free and would not need to be reported to HMRC, probably keeping him outside of self-assessment.
For more information, contact a consultant at exceed.co.uk