Higher tax threshold for side hustles: What could it mean for you?

The tax minister responsible for HMRC, James Murray, recently delivered a speech marking the 20^thanniversary of HMRC, which was known as the Inland Revenue until that point. During the speech he highlighted some simplifications that are planned for the future. Particularly interesting was the announcement of plans to increase the Income Tax Self Assessment (ITSA) reporting threshold for gross income from £1,000 to £3,000.

Who would be affected by this change?

This threshold would apply to anyone with a self-employed trading income, however it can be particularly useful to those with what is called a ‘side hustle’. A side hustle is an income-generating activity that is pursued alongside a full-time job or main source of income.

Some have a side hustle for trading clothes online, doing some dog-walking or gardening, or creating online content. Currently if income from these activities exceeds £1,000 then it is likely that a tax return would need to be completed and filed.

However, if the threshold is increased to £3,000, it’s estimated that up to 300,000 people will escape the need to complete a tax return.

An important point to note…

This change could be very welcome news for the 300,000, but it’s important to remember that the £3,000 threshold relates to the requirement to submit a self assessment tax return – the £1,000 trading allowance will not change.

Someone with a side hustle that generates £1,200 of income would need to report their trading income through a new online service and will pay tax on the £200 after the £1,000 trading allowance has been deducted.

When will the increase happen?

No definite date has yet been mentioned, only the promise that it will happen ‘within this parliament’.

If you’d like to check whether you need to complete a tax return for your self employed business or side hustle please get in touch.