HM Revenue and Customs (HMRC) has confirmed a significant change to the way it collects tax on side incomes. While the reporting threshold will rise from £1,000 to £3,000 in 2029, individuals will still owe tax on profits over £1,000.
The new rules are aimed at streamlining the system for those earning extra income through online sales or small-scale services. According to HMRC, the change will remove thousands from the self-assessment system but does not alter the point at which tax liability begins.
Simplified Reporting System for Small Earners
HMRC will introduce a new simplified online platform to replace the self-assessment process for those earning between £1,000 and £3,000 from secondary income sources such as dog walking, taxi driving, gardening or selling goods online.
Currently, anyone exceeding the £1,000 trading allowance must register for self-assessment and complete a full tax return, providing details on earnings, expenses and other financial information.
Under the new rules, these individuals will instead pay through the new streamlined system. According to the Association of Independent Professionals and the Self-Employed (IPSE), “Whilst the tax reporting threshold is set to increase to £3,000, the tax-free trading allowance will not,” meaning tax will still be charged on any profit above £1,000.
For example, a basic rate taxpayer with £3,000 in side hustle income would owe £600, while a higher rate taxpayer earning the same would face a £1,200 bill. Those earning above £3,000 will still need to file a full tax return through the existing self-assessment process.
Impact on Taxpayers and Administrative Efficiency
The reform is expected to benefit around 300,000 taxpayers, with approximately 90,000 of them no longer needing to submit any income reports, according to HMRC. These changes are presented as part of the government’s plan to modernise the tax authority, reducing administrative burdens and simplifying compliance for small earners.
Despite the increase in the reporting threshold, the policy does not provide any additional tax relief. Earnings under £1,000 remain free from tax and reporting, while profits between £1,000 and £3,000 will now be paid through the simplified online system rather than full self-assessment.
The new system is designed to improve efficiency while maintaining revenue collection from side incomes. By allowing low-level earners to bypass self-assessment, HMRC expects to reduce paperwork and streamline its services while ensuring compliance for those above the £3,000 threshold.
