New limit for self-assessment reporting

The government is planning a change that it says could save thousands of taxpayers from having to file a self-assessment tax return. What’s the full story?  Partner Kenny Adamson has the full story.

The Treasury recently announced a change to the tax reporting rules that will remove around 300,000 taxpayers from the self-assessment system. This will apply to individuals who receive no more the £3,000 per tax year from self-employed trading. The change has been widely misreported in a way that could land some taxpayers in trouble with HMRC.

Existing rules
Currently, if in a tax year you receive trading or certain types of miscellaneous income of no more than £1,000 (before expenses) and have no other reason to submit a self-assessment tax return, the income is exempt from tax.

What’s changing?
The £3,000 limit, when introduced, which might not be for a few years, will only be for the purpose of determining if you’ll be required to complete a self-assessment tax return. It is not, as some reports suggest, an increase in the £1,000 tax exemption. Instead, if you have no other reason that requires you to submit a tax return and your trading income is between £1,000 and £3,000, you’ll need to report the income and pay tax using a new online system that will be set up by HMRC.

If you’re required to complete a self-assessment tax return for another reason, say because you receive untaxed investment income, you’ll need to report your trading income on your returns if it exceeds £1,000.

IN SUMMARY
The government implies that the new system will be a simplification. But adding yet another reporting and assessing option is a complication (and cost) to a tax system that many people already struggle with.

The plan is to excuse you from self-assessment if your income from trading is £3,000 or less. The existing £1,000 exemption from tax will not be increased. But you’ll be required to report and pay tax on the excess using a new online system.

Contact the JRW Hogg & Thorburn team to discuss this further and any other related questions you may have.