MOUTHWATERING MEALS TO BOOST YOUR ENERGY
THE MIDLIFE KITCHEN
Sell cakes. Make your own cider. Rent out your drive. How YOU can cash in on little known tax breaks . . .
NO MATTER what you do it seems like the taxman is always getting his hands on your hard-earned money.
Normally, anything you earn is liable for income tax after the first £11,500 — the tax-free personal allowance this year.
But there are ways you can earn more than this and keep every penny. From selling cakes online to renting out your driveway, there are a host of allowances you can use to boost your income.
First, we look at turning a favourite pastime into cash. In the eyes of the taxman, there is a fine line between making a bit of extra money from a hobby and running a business, but here’s what you could do . . .
CASH IN WITH YOUR HOME-MADE TREATS
WHILE HM Revenue & Customs wants to encourage start-ups, it also has to ensure entrepreneurs pay their fair share of tax. This is where the new trading allowance comes in.
Introduced this month, it enables anyone to earn £1,000 a year from a hobby or start-up business before declaring the income to the taxman.
It means people who sell goods on eBay or make a bit extra baking cakes or selling woodwork and other crafts on sites such as Etsy, can do so without fear of being taxed.
The exemption includes ‘casual services’ such as babysitting or gardening as well as loaning out personal equipment like power tools.
But even those who are serious about going into business can now take advantage of the new rule.
HMRC says: ‘If you’re starting a new self-employed business and expect your gross income will be no more than £1,000, you don’t have to register for self-assessment.’
Once you earn takings above this threshold, you will need to pay income tax on your full profits — including that first £1,000 of income.
Amateur baker Jodie Beer, 33, a training manager for a restaurant chain, will benefit from the new rules. Jodie has always enjoyed making cakes, but last year she began to take her hobby more seriously, making birthday, wedding and Christening cakes for friends and family.
Although she currently gives her cakes away, she hopes to make it into a part-time business soon. Jodie says: ‘I’m completely self-taught, but I’m hoping to start a professional sugar craft course in September.
‘It’s great that I’ll be able to bake for more people without the worry and panic of self-assessments.
‘The exemption means people can start up a small business and just see what they can do with their hobby.’
George Bull, at RSM UK Tax and Accounting Limited, warns: ‘If there’s any chance at all that your income from a hobby or small trading venture could exceed £1,000 in a tax year, you should keep a record of costs and expenses in case you later need it.’
SELL 12,000 PINTS OF CIDER A YEAR
SOME parts of the tax system throw up quirky historic exemptions. Cider enthusiasts, for example, can make up to 12,000 pints a year — the same as 7,000 litres, or 1,500 gallons — and not pay a penny of alcohol duty.
Manufacturers usually pay excise duty to HM Customs and Excise on any products containing alcohol.
Breweries, for example, must pay beer duty of £19.08 per 100 litres for each per cent of alcohol in the drink.
Still cider and perry is charged at £40.38 per 100 litres for drinks between 1.2pc and 7.5pc alcohol by volume (abv) and £61.04 for stronger ciders. But an exemption was introduced in 1976 to encourage farmers to keep small orchards and preserve habitat for wildlife.
It would also be a bureaucratic headache for the taxman to pursue every tiny cider producer for duty.
The tax exemption came under threat two years ago when the European Union tried to axe the benefit in an attempt to harmonise the UK’s excise rules with the rest of Europe. But following fierce opposition, this has been put on hold for now.
The Campaign for Real Ale says someone producing fewer than 12,000 pints a year (33 pints a day) would be saving up to £2,800 in tax.
James Crowden, author of Cider: The Forgotten Miracle, says: ‘The historic tax exemption is a glorious oddity which the cider-making fraternity richly deserve, so long as it is not abused. Why 1,500 gallons? Well, if you were a farmer and had four workers as well, that was 300 gallons a year each to drink.
‘A gallon a day — the equivalent of eight pints of cider — with a day off for Sunday. The government of the day could not be seen to deny poor farmworkers their ancient perks.’
Lewis Scott, 64, produces an awardwinning cider alongside running a business converting holiday homes.
He has been making cider for eight years after deciding to lease a neglected orchard next door to his home in Ross-on-Wye in Herefordshire. His cider label, Cleeve Orchard Cider and Perry, makes 7,000 litres a year, so he pays no alcohol duty.
He sells his drink to delicatessens, pubs, cider festivals and individuals, and says: ‘It’s a wonderful, natural process — working out there in the orchard when the birds are singing. It’s marvellous.
‘Around 80 pc, maybe even more, of
cider makers in this area fall under the tax threshold — and for most it’s a useful second income. If the exemption was scrapped it would be devastating to producers of my size. Orchards and jobs would disappear.’
COLLECT CLASSIC CARS
YOU typically pay capital gains tax (CGT) on the profits you make on investments.
So if you buy shares for £20,000 and sell them for £100,000, you would need to pay CGT on the £80,000 profit. Everyone has an annual tax-free CGT allowance of £11,300, so you would only pay CGT on £68,700.
But profits from selling any car — old or new — are generally not taxable. So you can buy and sell vintage and classic cars without worrying about the tax inspector.
In 2010, it was reported that Radio 2 DJ Chris Evans had sold several classic cars from his collection to buy a £12 million rare 1963 Ferrari 250 GTO — but paid no CGT on the sale of his cars because of the exemption. The clause is intended for genuine hobbyists only, or those who did not buy the car with the sole intention of selling it for profit. If the taxman suspects the sale bears the hallmarks of ‘trade’ you will be liable for income tax. HMRC looks out for several signs of ‘trade’, including the frequency of sale (was it a oneoff?), the length of ownership (if you bought it and sold it within a week, it would look suspicious), how it was acquired (if you inherit a vintage car you are less likely to be trading), and what your motive was for buying the car (do you collect Morris Minors?). Patricia Mock, a director at Deloitte, says: ‘If you’re in a classic car club and you sell one of your collection for a better version of a certain model, for example, you are unlikely to pay tax on it.’
TOAST PROFITS FROM FINE WINE
YOU don’t have to pay capital gains tax on profits made from selling anything which normally has a life span of less than 50 years. Known as ‘wasting assets’, this includes all machinery, antique watches, clocks — and even fine wine.
This is usually included because it is ‘perishable’ — generally reaching peak maturity after 25 years before declining. To qualify, your purchase must be stored in a so-called bonded warehouse, which is approved by HMRC.
However, experts warn this can be a grey area of the law. Fortified wine such as a premium port, for example, designed to withstand significant ageing, is unlikely to be considered a wasting asset.
FLOG JEWELLERY AND ANTIQUES
ANY personal possessions sold for less than £6,000 are exempt from capital gains tax.
This could include jewellery, paintings, antiques, coins and stamps, vases — anything which can be moved.
Again, though, if the taxman believes you bought the goods with the intention of then selling them for profit, HMRC could chase after you for income tax.
Capital gains tax on sales, excluding property, varies between 10 pc and 20 pc — so this exemption can mean a big tax saving.
RENT OUT YOUR HOME ON AIRBNB
HOMEOWNERS can earn up to £7,500 per year tax-free from letting out furnished accommodation in their main home.
Rent-a-room relief was intended to encourage more people to take on lodgers. But many use it to let their home tax-free to holidaymakers for a night at a time or a weekend on informal renting websites such as Airbnb.
Up to 52,000 Britons use Airbnb and the average host makes £2,000 a year, rising to £3,000 in London. You can let out as much of your home as you want — so you could rent out just one room or your entire house.
The Government is now considering banning homeowners from using the tax break for shortterm lets, as this was not its intended use. It is consulting on the issue and the next government could make a decision by the end of the year.
This would mean homeowners would have to pay income tax — or they could use the new property allowance (see next section) if they earn less than £1,000.
You cannot be living abroad when you let the property, but you could be on holiday, tax experts said.
LET STRANGERS USE YOUR DRIVE
YOU can let your driveway, parking space or even loft storage and pay no tax on the takings. Homeowners could even rent their kitchens to film a cookery show under this broad tax exemption.
Introduced in April, the new property allowance allows people to earn £1,000 income a year from their property in a variety of ways before they have to declare their earnings to the taxman.
You don’t even need to tell HMRC, because no tax is owed. But if your gross annual income from renting out parts of your home exceeds this, you’ll need to fill in a self-assessment tax form and pay tax on the entire profits.
HMRC says people could use the new property and trading allowances and take advantage of rent-a-room relief in a single year — but only if you have three separate money-making ventures. For example, if you rent out your home, you cannot use the property allowance and rent-aroom relief for this.
An HMRC spokesman says: ‘If someone is using the rent-a-room relief to let their home, they will only be able to use the new property and trading allowances for a separate source of income.
‘They can use rent-a-room relief for letting out a furnished room and the new property allowance for renting out their driveway for a parking space.
‘Or, they can use rent-a-room relief for letting out a room and the new trading allowance for doing some handyman work.’