HMRC makes £3,000 change to tax rules as households hit with £600 bill

HMRC has unveiled a significant shift in its for 'side hustles', introducing a new £3,000 threshold - but you will still owe just as much tax as before. The tax authority plans to amend the rules on 'side hustles' and online selling, allowing people to earn up to £3,000 without needing to submit a self-assessment tax return.

At present, those engaged in activities such as online selling, taxi driving, dog walking or jobs, among other 'side hustles', must register online to pay tax to if their profit exceeds £1,000 in a single tax year. This process involves completing a lengthy return on the HMRC website, including details of payslips, , student loans, expenses, profits and losses related to any side hustle.

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However, under the proposed changes, you will be able to earn up to £3,000 before having to register to pay tax through the self-assessment system.

Despite these changes, which come into effect in 2029, those impacted are being reminded that they still owe tax to the government. Somewhat confusingly, tax is still due on earnings over £1,000 - the actual threshold hasn't been raised to £3,000, reports .

The key difference is that those who owe tax below the new £3,000 limit can make their payment via an online service, rather than going through the self-assessment process, according to HMRC.

This means that tax is still due on earnings between £1,000 and £3,000, but this tax won't be paid through the cumbersome self-assessment tax return process.

According to IPSE, the current situation is such that "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."

However, while the tax reporting threshold is set to rise to £3,000, the tax-free trading allowance will not.

This implies:

• Earnings under £1,000: No tax is owed and there's no need 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."

For a basic rate taxpayer, 20% Income Tax applied to a profit of £3,000 would land you with a £600 tax bill that would need to be paid through the new online system.

For a higher rate taxpayer with an overall income above £50,270, this would be a £1,200 bill. Of course, the amount owed would be higher still if you earned even more than £3,000 and had to go through self-assessment.

The HMRC announcement said: "As part of a bold new package to transform HMRC into a quicker, fairer and more modern body the minister is expected to announce plans to increase the Income Tax Self Assessment (ITSA) reporting threshold for trading income, from £1,000 to £3,000 gross within this parliament.

"This will benefit around 300,000 taxpayers. An estimated 90,000 of them will have no tax to pay and no reason to report their trading income to HMRC in the future at all.

"Others will be able to pay any tax they owe through a new simple online service. The changes reflect the government's commitment to driving forward efficiency reform, a key component of its Plan for Change."