HM Revenue and Customs plans to increase the Income Tax Self Assessment (ITSA) reporting threshold for trading income from £1,000 to £3,000.
This substantial change aims to streamline tax reporting for individuals with relatively small self employed income.
Around three hundred thousand British side hustlers will no longer need to file tax returns, thanks to a policy shift by the UK government.
This significant change specifically targets small-scale entrepreneurs earning under £3,000 annually from their self employment.
The aim is to introduce a new digital system for individuals earning £1,000 to £3,000, allowing them to report and settle income tax liabilities without submitting a self assessment return.
As a result of this reform a meaningful number of online sellers, content creators and small business owners can expect substantial relief from administrative burdens.
The policy marks a decisive step towards modernising Britain’s tax system through digital innovation and simplified processes.
This transformation aims to support the growing side hustle economy while ensuring efficient tax collection methods.
The new approach combines raised earnings thresholds with smart technology, positioning the UK at the forefront of digital tax administration.
For those operating within the new threshold, a straightforward online form will replace the traditional self-assessment process for declaring cash earnings up to £3,000.
Exchequer Secretary to the Treasury, James Murray 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.”
Is the trading allowance changing?
No, the value of the self employed trading allowance is not being changed as part of the proposals.
What is planned is that those earning between £1,000 and £3,000, a new streamlined process will replace the traditional self-assessment system.
For clarity, these modifications do not affect the existing trading allowance rules.
Although individuals will still need to pay tax on earnings above £1,000, they will not need to file a formal tax return until their income reaches £3,000.
People who occasionally sell personal items online at a loss, such as unwanted clothes or household items, generally do not have reporting obligations.
Traders who regularly sell items bought specifically for resale at a profit must still comply with self employed trading income regulations.
Who qualifies for the new self employed tax return threshold?
The revised trading allowance threshold encompasses a broad spectrum of side hustlers, including digital content creators, gardeners, and private hire drivers.
The policy extends to individuals selling items on platforms such as Vinted, Amazon, eBay, and those offering services through various digital marketplaces.
Eve Williams, CEO of eBay UK, commented:
“This will be welcome news for thousands of UK sellers for whom eBay is a side hustle and a means of supplementing their household income during challenging times. By removing the paperwork associated with selling online, hopefully we will help these side hustles grow into fully fledged small businesses.”
Under the current system, anyone earning more than £1,000 from trading activities must register as self-employed and submit a tax return.
Nevertheless, the new threshold will benefit approximately 300,000 taxpayers, with 98% being self-employed individuals reporting small trading incomes and 2% declaring property-related earnings.
Notably, about 90,000 of these taxpayers will have no tax obligations and will not need to report their trading income to HMRC.
When will the new tax return reporting threshold take effect?
The exact implementation date for these changes wasn’t officially confirmed in the government’s announcement of the 11 March, but should be before the end of the current parliament.
This timeline allows HMRC to develop and implement the necessary digital infrastructure to support the changes.
When the new tax return threshold is put into operation HMRC will expect you to still register for self assessment and complete a tax return if your earnings from self employment are over £3,000.
Ellen Milner, Director of Public Policy, Chartered Institute of Taxation said:
“We welcome the government’s focus on simplifying the tax system and improving customer service – rightly two key priorities for HMRC as the tax authority heads into its third decade. A more straightforward, easy to navigate tax system could free up business owners and managers to focus on growing their businesses, rather than spending their days overcoming bureaucratic hurdles. We especially welcome the announcement of a new approach to dealing with slow-moving income tax queries from agents. Hopefully, in due course, this can be expanded to unrepresented taxpayers and to other taxes.”
A welcome tax boost for small scale entrepreneurs
British entrepreneurs and small-scale traders express satisfaction over HMRC’s decision to simplify tax reporting requirements.
James Murray Secretary to the Treasury underscored the government’s commitment to supporting entrepreneurial spirit, stating: “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.”
The policy acknowledges the surge in side hustles during recent years, with nearly one-fifth of people starting additional income streams during the pandemic.
The reforms arrive at a crucial time for the digital economy. The resale market has experienced substantial growth, driven by increasing environmental awareness and sustainable shopping preferences.
Through these changes, HMRC aims to foster an environment where side hustlers can focus on growing their ventures rather than managing complex tax paperwork.
This streamlined approach ensures proper tax compliance whilst reducing administrative burdens on small-scale entrepreneurs.
