George Osborne’s announcement in last week’s budget that “micro-entrepreneurs” are to get two new £1,000 tax-free allowances will have been a relief for the new generation of landlords who rent out rooms on Airbnb, or weekend traders who make small amounts selling goods on eBay.
In the budget the new relief was framed as coming at a time of “rapid growth of the digital and sharing economy”, but it will be available for anyone making small profits offline too.
Under the new allowances, from April next year individuals with property or trading income won’t need to declare or pay tax on the first £1,000 they earn from each source per year. Should they earn more than that amount they will have to declare it, but they can still take advantage of the allowance.
“Although it has been flagged as a sort of micro entrepreneur or sharing economy relief – and it is true that it will hit those targets – it will hit a much wider target range than that because it isn’t really possible to define ‘micro entrepreneur’ or ‘sharing economy’ adequately for tax purposes to try to target relief on one group of people or another,” says John Steveni, a tax partner with PricewaterhouseCoopers. “Actually, anybody who earns the right sort of income, however much they earn, will get the relief – although everyone only gets the first £1,000 tax free.”
The Treasury has said that they new relief will be for “self-starters”, from mothers who supplement their income with a bake sale to those who do some trading on eBay.
A spokesman said: “Property income would come about from any income that you make from renting out a residence, home, building, property or land – so you could rent out your driveway as a parking space. You can rent out your home to tourists, which is the Airbnb bit. Or you can rent out your garden space.” He added: “Trading income covers any sale of goods or services. You could do tasks such as cleaning or odd jobs, hiring out your own equipment such as power tools, or selling goods through a website like TaskRabbit, Etsy [or] eBay.” The government claims 700,000 people will benefit from the new tax break, a figure based on self-assessment data from HMRC.
According to Steveni, the move will act to give reassurance to people who may have been concerned about declaring amounts less than £1,000, but also send an alert to people earning more than that figure. “What I think this relief does, which is probably quite useful, is that it’s saying to people who are earning very small amounts, ‘you don’t have to worry about what are potentially very complicated tax questions to decide whether you are “trading” or not’. It will just say it is a safe harbour so you can earn anything up to £1,000 a year, aggregated across everything you do, and you don’t need to worry. So someone earning small bits of money from odd jobs or trading things online will know that they don’t have to put anything in a tax return,” he said.
“I think it also sends a message if you have been earning more than £1,000 from these sorts of activities, but it hadn’t occurred to you that you might be taxable on it. It is a useful flag to such people that maybe they ought to think about declaring it. Although I don’t think it’s been stated that that is intentional, it is a useful side-effect.”
The Treasury claims the new rules are about making it easier for people to know what taxes to pay, not to alert others to their responsibilities. “It is important that the rules for tax are clear, and that people can understand them and comply with them. But these allowances are about making it easier for people with low levels of property and trading income. HMRC will continue to take tax fraud and evasion seriously,” the spokesman said.
The move, which is expected to cost the Treasury £235m a year by 2018, was welcomed by companies operating in the sharing economy, including Airbnb. In a statement the company said: “We applaud the government for supporting hosts and progressive business models across the country; their leadership on this important issue is an example to the world.”
Sharing Economy UK, an industry group for companies operating within the sector, also welcomed the fact that Britain is the first country to introduce such a relief.
Alex Stephany, the author of The Business of Sharing and an advisor to JustPark, which links drivers with car parking spaces, welcomed the move as a step in the right direction, but said he would like to see the threshold raised further. “It reflects the fact that more and more people are making money in more diverse ways, and that to offer a relatively small exemption around that is a way of both encouraging that but also making it easier for people who want to do that.”
It is the second tax break in a row for Airbnb landlords, who were also offered an increase in the “rent-a-room” allowance in the 2015 budget. That allowance, which rose from £4,250 to £7,500 a year, applies to landlords who rent out a spare room in their house. The new tax relief cannot be used on the same income by someone who is taking advantage of the rent-a-room allowance. “They could use it if they were letting out furnished accommodation in their home but then also renting out their driveway as a parking space – then they could use both,” the Treasury spokesman said. “Or if they were renting out a room in their home but then decided to do some handyman work.”
The issue of taxing income derived from the sharing economy has raised confusion in the past. The Association of Chartered Certified Accountants has warned homeowners that they have to declare the income from such practices to the taxman or else face a fine, while last summer the tax authorities in Ireland warned people who rented out properties or bedrooms on Airbnb that they should make sure that their tax affairs are in order.
WHAT TO SHARE?
The concept of “sharing” is predicated on the notion that spare capacity of resources such as cars and homes can be used by someone else. Economists say this increases efficiency and lowers the price of those goods and services.
Most prominent among the firms capitalising on the trend is Airbnb (room and home rentals), but others such as BlaBlaCar (journey sharing), Nimber (package delivery), TaskRabbit (small jobs) and JustPark (unused driveways) have emerged. PricewaterhouseCoopers says the UK sharing economy could be worth $15bn (£9bn) by2025.
