Over 300,000 people will no longer need to submit a tax return, as HMRC have increased the reporting threshold for completing a Self Assessment. This is a welcome change for those with a side hustle, who will now be able to retain even more of their earnings.
Here’s everything you need to know about paying tax on your side hustle – plus the latest changes from HMRC.
Trading income reporting threshold increased to £3,000
HMRC have announced plans to triple the income tax Self Assessment reporting threshold from £1,000 to £3,000 by the end of 2029.
Currently, anyone with a side hustle who earns more than £1,000 needs to submit a Self Assessment and pay tax each year. The newly increased threshold means that while you’ll still have to pay tax if you earn between £1,000 and £3,000 from your side hustle, you won’t have to complete a Self Assessment.
Instead, you’ll pay tax through a ‘new simple online service’. While the specifics are yet to be revealed, HMRC have announced that the new threshold will benefit up to 300,000 people.
Those who earn over £3,000 will still need to submit a Self Assessment and those who earn under £1,000 won’t need to pay any tax.
‘The tax burden for side hustlers has not changed’
But is increasing the reporting threshold enough to help the UK’s side hustlers?
Julie Fisher, UK CEO of Simply Business, says: “While reducing the level of paperwork expected from the UK’s smallest businesses is a positive update, the tax burden for side hustlers has not changed. The tax-free trading allowance, frozen at £1,000 for over seven years, hasn’t kept up with inflation.
“Increasing the trading allowance would empower the nearly half of Britons (48%) who are balancing a side hustle for extra income to grow their side hustle, retain more of their earnings, and potentially turn their passion project into a full-time job.
“Our economic growth depends on the success of an innovative and resilient community of entrepreneurs, including side hustlers, small businesses, and the self-employed. While this change is a step in the right direction, for many the change falls short of demonstrating the government’s full commitment to supporting entrepreneurs.”
HMRC introduces new tool to check tax obligations for side hustle earners
HMRC has launched an online tool to help those with a side hustle better understand their tax obligations. This is because, as of January 2024, many popular side hustle platforms must report how much money users are making on their platforms to HMRC.
This means that authorities will have the same visibility of income for those who earn money on these digital platforms as they would a traditional business.
The online tool is helpful for those who:
- sell goods or services online
- sell their personal possessions online
- create content
- rent out property online
For more information on how tax applies to your side hustles, you can use the online tool.
If the tool shows that you do need to pay tax, you’ll be expected to submit your own tax return and pay your taxes as usual. It’s important that the information you submit on your tax return is accurate, as HMRC will be able to cross check this information with the numbers provided by the digital platforms.
The changes will only affect those who aren’t reporting, or are underreporting, their income to HMRC. These changes come as part of wider regulations to combat tax avoidance, specifically for those who earn additional income from working side hustles as part of the gig economy.
Who do these side hustle tax reporting changes affect?
Whether you earn an additional income as part of a side hustle or make your full living through freelance work on these platforms, the HMRC side hustle tax changes will apply to you.
Some of the type of work affected by the changes include:
- food delivery workers using apps like Uber Eats and Deliveroo
- those selling their products on digital marketplaces like Etsy
- taxi and private hire drivers on apps such as Uber
- those renting out short term properties or offering experiences on Airbnb
- freelancers finding work on platforms like Upwork and Fiverr
- selling your own possessions on eBay and Vinted
Find out more about the rules for reporting tax for digital platforms on the government website.
Who needs to report their side hustle earnings?
The tax-free trading allowance is £1,000. This means that if you’re earning over £1,000 from your side hustle, you’ll need to pay tax.
However, now that HMRC is set to raise the income tax Self Assessment reporting threshold, you won’t need to submit a Self Assessment until you earn £3,000. This is planned to come into effect before 2029.
Remember that the tax-free trading allowance covers all forms of income – so if you’re selling products on eBay as well as delivering food through Uber Eats, it all shares the same £1,000 limit. The same goes for the income tax Self Assessment reporting threshold.
Anyone working, part-time or full-time, on a self-employed basis (including through a side hustle) and earning over £1,000 will need to be paying tax on their income.
Selling goods and services online – when do you need to pay?
If you’re regularly selling clothes on apps such as Vinted, Depop, or eBay, there’s a chance you may tax on your earnings if it’s more than £1,000 in a year.
This all comes down to whether or not you’re classed as a trader. For example, if you’re using these apps to sell your personal possessions for less or the same price as what you originally paid for them, you’re unlikely to be considered a trader. This means that you won’t need to pay tax on your sales.
However, if you have a side hustle of sourcing and reselling second hand clothes, you’ll likely need to pay tax. This is because you’re aiming to make a profit on the clothes you sell, making you a trader.
This doesn’t only apply to clothes and could include any item you regularly sell for a profit (including that you make). It also includes services you provide, not just items.
You can find out more information about selling online and the tax you need to pay here.
HMRC also has a helpful video which explains who’ll need to be paying tax under these new changes.
Additionally, if you sell an item you own for a profit and it sells for over £6,000, you may have to pay capital gains tax.
What is the gig economy?
Side hustlers are part of the gig economy. The gig economy is another term for those working freelance jobs or those with a side hustle alongside full time employment. This flexible way of working is becoming more popular as workers prioritise the importance of a healthy work-life balance.
While some people become a part of the gig economy and take on a side hustle to earn some extra cash, for many, it’s a way to take control of their career. Recent data from our 2023 SME Insights Report shows that 40 per cent of businesses started as a side hustle.
Paying tax on your side hustle – a quickstart guide
When you’re running a side hustle, you need to make sure you’re fully aware of what goes into paying tax as a self-employed person.
If you’re working a side hustle on the side of additional full time work, make sure you’re aware of the second job tax rate.
From registering for Self Assessment to completing a tax return, learn how to do a self-employed tax return here.
You won’t need to pay tax on your side hustle until you hit the £1,000 tax-free allowance. But from 2029, you won’t need to submit a Self Assessment until you start earning £3,000.
And of course, make sure you’re registered as self-employed with HMRC.
Depending on the work you do, you may also need insurance to make sure you and your customers are safe.
More guides on running a side hustle
- How to start a side hustle
- What is a freelancer and how can you become one? A step-by-step guide
- Is work life balance possible when you have a side hustle?
- What type of business insurance do I need?
Looking for self-employed insurance?
With Simply Business you can build a single self-employed insurance policy combining the covers that are relevant to you. Whether it’s public liability insurance, professional indemnity or whatever else you need, we’ll run you a quick quote online, and let you decide if we’re a good fit.