Side hustle tax changes: Self-assessment tax returns could save thousands of dollars thanks to HMRC reforms

This is how your side business might benefit from the government's plans to increase the tax-free threshold for trading income

An exemption from the administrative burden of self-assessment may be granted to up to 300,000 individuals who earn additional income through side hustles.

Today (March 11), the government announced changes to the self-assessment system that may exclude those who earn extra money outside of their regular jobs, like dog walking or online clothing sales, from filing taxes.

Due to frozen tax thresholds, a growing number of people have been caught in the self-assessment net in recent years. The amount of tax owed on assets has increased due to the reduction of the dividend and capital gains tax exemptions.

By the end of this parliament, the government will change the thresholds for how much trading income an individual can make before being required to report the earnings to HMRC, according to Treasury Exchequer Secretary James Murray this afternoon.

As a result, you might not have to worry about taxes when you sell products and services online.

It is the government's most recent attempt to stimulate the struggling economy by giving taxpayers more time to "create the conditions for economic growth."

It was also revealed that HMRC will use generative artificial intelligence to direct taxpayers to the GOV guidance they require in an effort to enhance customer service. the UK.

Additionally, HMRC has started testing a system that allows users to pass security checks more quickly and securely by using their voice as their password.

"From trading outdated games to producing content for social media, we are transforming HMRC's operations to enable British citizens to fully embrace their entrepreneurial spirit," Murray stated.

"Hundreds of thousands of people will have more time to develop their side business and spend less time filling out forms if they are not required to file tax returns.

"In order to ensure that HMRC delivers the Plan for Change that will help put more money in people's pockets, we are moving faster and farther to overhaul the way it operates.

Is the tax on "side hustles" changing?

For the first 1,000 dollars earned annually from what HMRC refers to as casual services like gardening and babysitting, people are currently exempt from paying taxes thanks to a trading allowance.

Additionally, it can be used when selling goods on well-known websites like Vinted and eBay.

Since last year, digital platforms have been obliged to provide HMRC with information about users' income.

This means that if they haven't disclosed their "side hustle," thousands of people who make a little extra cash from it could be caught by the tax collector.

However, a 3,000 increase in the trading income tax exemption is currently planned.

"This is good news for thousands of UK sellers who use eBay as a side business and to help supplement their household income during hard times," said Eve Williams, CEO of eBay UK.

It is our hope that by eliminating the paperwork involved in online sales, these side projects will develop into fully functional small enterprises.

Murray stated that the change would take effect by the end of this parliament, which would be in 2029, but no specific date was provided.

Will my "side hustle" be subject to tax?

According to Treasury estimates, about 300,000 taxpayers will benefit from the increase in the trading income threshold from 1,000 to 3,000.

An estimated 90,000 of them will not be required to pay taxes and will not have any reason to report their trading income to HMRC in the future.

A new, easy-to-use online service will allow others to pay any taxes they owe.

"Any move that alleviates this pressure has to be welcomed," stated Laura Suter, AJ Bell's director of personal finance. "HMRC is overburdened by the volume of people contacting their helplines and filing tax returns.

Due to recent changes to the tax code, millions more people are now required to pay taxes, many of whom require assistance and support from HMRC. The tax collector, however, finds it all very taxing and has had difficulty keeping up with the increasing demand.

According to the government itself, 90,000 people who file self-assessment tax returns for this income are merely filling out unnecessary forms for which HMRC is not collecting any taxes because they have no tax to pay. It is commendable that these ridiculous anomalies in the tax system have been resolved. But the dates for implementing this measure are incredibly ambiguous.