£2,000 of digital tax allowances and how you can use them

In his Budget, the Chancellor trumpeted the benefits of special tax-free allowances for people making money from the internet.

From next year you will be able to earn £1,000 from selling stuff via ebay and other auction and selling websites.

And you'll be able to make another £1,000, tax free, by renting out your property in different ways. That's what many people are doing by using sites including airbnb and ownersdirect.

So who is likely to do well out of these allowances? And have we been dodging tax up until now, simply by making money from online sales?

Flogging on the net
If you make money from the internet, flogging goods stacked up in your garage, for instance, or renting out the garage itself, then that money can be taxable. That's if you are working as a trader.

George Osborne calls you a micro-entrepreneur, selling services online or renting out all or part of your home.

The first £1,000 of income from your online sales will be tax free, although you won't be able to take off your running expenses before calculating the total.

Micro-entrepreneurs only have to declare income above the £1,000 threshold for tax purposes.

When it comes to renting out furnished accommodation, there is already a Rent a Room scheme giving you £4,250 tax free, rising to £7,500 from next month.

You will be able to use the new property allowance at the same time, though not for the same part of the home.

So, for instance, you could rent out the spare room using the Rent a Room scheme and use the new £1,000 allowance to save tax on renting out a parking space on the drive.

Are you a trader?
The big question is whether you are a trader in the first place.

If you are simply selling junk from the attic, books and CDs, a spare bike or even your used car, it is unlikely that the proceeds would be taxable anyway.

These are one-offs. What the tax people are interested in are repeat sales, when the intention is to make a profit.

On the other hand, renting out parts of your home on a regular basis would normally be taxable.

That's if you have already used up your personal allowance, the amount - currently £10,600 - that you can earn before income tax kicks in.

How to work out if you are a trader or not, from the tax people at HMRC...

What we consider to be trading

It can sometimes be difficult to tell the difference between trading and not trading.

You are most probably trading if:

• you want to make a profit

• you have bought goods to sell them on

• you sell things often or regularly

• you register as a business seller on an internet auction site

• you sell from a market stall

• you buy things wholesale or through trade suppliers

• you change or improve things before selling them on

• you sell things that you have just bought

• you sell things that are related to another business that you run

• you have borrowed money to pay for the things that you are selling and you need

to repay that loan.

You are probably not regarded as trading if:

• you only sell things to cover your costs

• you sell a personal possession or something that you have been given or

have inherited

• you only make sales occasionally

• you are not registered as an online shop or trader on an internet auction site

• you make no changes or improvements to the items that you sell

• you occasionally sell a personal possession that you have acquired or bought

some time ago.