The government has announced an upcoming change to tax reporting requirements for people with side hustles and small self-employed incomes. 

Within this parliament – or by the end of 2029 – the threshold for filing a Self Assessment tax return for trading income will rise from £1,000 to £3,000. But trading incomes greater than £1,000 will still need to report and pay tax. Confused? Here’s what you need to know.

The reporting threshold determines whether you need to file a Self Assessment tax return for income earned outside of traditional employment. This would include freelancing, online selling or other side hustles. Previously set at £1,000, this threshold will eventually rise to £3,000.

For example, if you earn £3,500 from selling handmade goods online, you’ll still need to submit a return as usual. However, if you earn £2,500 annually from your side hustle, you’ll no longer be obliged to submit a Self Assessment return – but you’ll still need to let HMRC know about this income and pay any tax due. That’s where the proposed ‘simple online service’ comes in.

For those earning between £1,000 and £3,000 HMRC plans to launch a simplified online platform to declare and pay any tax owed without need to complete a full Self Assessment form. 

Exchequer Secretary, James Murray MP, who announced the changes this week, said that the new online service would help people to spend “less time filling out forms” and give them “more time to grow their side hustle.”

The trading allowance – a separate £1,000 tax-free allowance for casual self-employed income – is not set to change as part of this announcement.

Currently, the trading allowance and the threshold for reporting Self Assessment income are set at the same level, effectively meaning that side hustle incomes lower than the £1,000 threshold are completely free of tax and reporting obligations.

But whilst the tax reporting threshold is set to increase to £3,000, the tax-free trading allowance will not. This means:

• Earnings under £1,000: No tax is owed and no requirement to declare it.
• Earnings between £1,000 – £3,000: Tax may still apply on profits, but you can report the income using the ‘simplified online service’ rather than completing a full tax return.
• Earnings over £3,000: You must register for Self Assessment and complete a tax return and pay any taxes due on profits.

The plans to lift the tax reporting threshold for Self Assessment were unveiled alongside other measures designed to transform HMRC into a “quicker, fairer and more modern” organisation. But 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.

If the new service allows simple incomes to be reported in a few clicks, then this will undoubtedly make the process of reporting easier for the estimated 210,000 that are expected to be eligible for it. But decoupling the thresholds for reporting and paying tax on small incomes has the potential to create confusion. 

Moreover, it’s a missed opportunity to lift both thresholds together, as organisations like IPSE have campaigned for, which would give side hustlers an even bigger boost.