HMRC will no longer ask hundreds of thousands of people with side hustles to file a tax return under new plans unveiled this week.
The tax office will raise the reporting threshold for trading income from £1,000 to £3,000 by the end of 2029.
Current rules mean that anyone who earns less than £1,000 in side gigs within a tax year does not have to pay tax or declare the income, because of the Trading Allowance.
But if you earn even £1 more above that allowance, you’ll need to file a return to HMRC.
While HMRC’s new rules will mean you won’t have to report income until it reaches £3,000, you will still need to pay tax on anything earned over £1,000.
Instead of filing a tax return, those with lower trading incomes from side hustles will have to either pay via a simple tax bill or possibly through their PAYE tax code, according to experts.
HMRC rule change: People with side hustles will no longer have to report income below £3,000
James Murray, Exchequer Secretary to the Treasury, said: ‘From trading old games to creating content on social media, we are changing the way HMRC works to make it easier for Brits to make the very most of their entrepreneurial spirit.
‘Taking hundreds of thousands of people out of filing tax returns means less time filling out forms and more time for them to grow their side-hustle.
‘We are going further and faster to overhaul the way HMRC works to make sure it delivers the Plan for Change that will help put more money in people’s pockets.’
HMRC said the changes would mean up to 300,000 people will no longer need to file a self-assessment tax return, including people who sell their clothes on Vinted or Ebay.
Around a third will have no tax to pay, while others will be able to pay any tax through a ‘new simple online service’.
Some tax experts think the changes could have gone further to ease the administrative burden on taxpayers.
Dawn Register, a tax dispute resolution partner at BDO said: ‘While those making money from side hustles will benefit from some easing of their administrative requirements, this won’t absolve them of the obligation to pay the tax which may have to be collected through other means.
‘All in all, today’s announcement feels a bit peripheral. If you really want to take more people out of self-assessment, why not go further by increasing the threshold for savings income?
‘This would help many thousands of pensioners and others with relatively simple financial affairs who have been pulled into self assessment by fiscal drag.’
HMRC has been cracking down on people who sell online, sending retrospective nudge letters to people they suspect have not reported their income.
It came shortly after new rules came into force in January that require platforms to automatically report information about users and their selling habits to HMRC.
It means that HMRC will have more information on who is earning money on online platforms and therefore find it easier to spot who owes tax.
HMRC in US-style tax snoop scheme
HMRC is also set to unveil a new scheme to incentivise informants to come forward with information on tax dodgers.
The new scheme will offer significantly higher rewards than the current scheme, bringing HMRC in line with the substantial payouts to tax informers offered by the Internal Revenue Service (IRS) in the US.
Kate Ison, partner at international law firm BCLP, said: ‘The experience of the IRS shows that substantial amounts of money can be recouped by paying informants tax geared sums.
‘HMRC’s previous scheme never really offered the right incentives to encourage major whistleblowers to come forward. The measures announced today go some way to address that.
‘HMRC receives a lot of low-level reports by feuding neighbours and disgruntled employees.
‘Big ticket tax fraud is often highly complex and may involve criminal gangs where there is a risk of physical harm.
‘There need to be serious incentives to encourage whistleblowers to come forward in such cases as well as appropriate legal safeguards.’
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