The government has changed the rules regarding tax returns. Anyone earning less than £3,000 from trading will no longer have to file a return - but they still have to pay tax on profits from trading income over £1,000.
The government has announced plans to increase the threshold for reporting trading income from £1,000 to £3,000. The change is expected to take place during this Parliament; it may not take effect until 2029. It means that an estimated 300,000 people will no longer need to file a self assessment tax return.
Trading income includes income from side hustles, including selling clothes online, dog-walking, gardening, driving a taxi or creating content online.
However, anyone with earnings over £1,000 will still have to pay tax on their income. The government has said that it will introduce a "new simple online service" that allows people to pay the tax they owe.
What does the trading allowance change mean for you?
At the moment, the trading allowance and the threshold for reporting self assessment income are set at the same level - £1,000.
Now, the tax reporting threshold is set to increase to £3,000 but the tax-free trading allowance will stay the same. It means that:
- For earnings under £1,000, there's no need to file a tax return and there's no tax to pay.
- For earnings between £1,000-£3,000, traders won't have to complete a tax return but they will need to pay tax on their profits using a new online service.
- For earnings over £3,000, traders will have to file a tax return and pay any taxes due.
Of the 300,000 taxpayers affected, the government estimates that 90,000 of them will have no tax to pay and no reason to report their trading income to HMRC in the future.
"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." James Murray, exchequer secretary to the Treasury.
Commenting on the news, Immy Spence, head of sales, SME and growth at Airwallex, described the announcement as "great news for entrepreneurs and start-ups" and "a significant step forward in reducing the administrative burden for those just starting out in business".
She said: "This change will benefit approximately 300,000 people, from online content creators to marketplace sellers on online platforms, freeing them from time-consuming tax returns and allowing them to channel more energy into their entrepreneurial ventures, ultimately helping the global digital economy."
IPSE: A "missed opportunity"
The Association of Independent Professionals and the Self-Employed (IPSE) has described the move as "a missed opportunity to lift both thresholds together, as organisations like IPSE have campaigned for, which would give side hustlers an even bigger boost".
Fred Hicks, writing on the IPSE website, said: "How much easier will life be for side hustlers once these changes take effect? Without knowing more details about the proposed 'simplified online service' and how it works, it's hard to say. Like full-time freelancers, side hustlers will still want to keep records of income and expenses in case HMRC requests these details from them in future. The changes also aren't expected to take effect until 2029, so it won't be making life easier for casual freelancers anytime soon."
Written by Rachel Miller.