Up to 300,000 people earning extra income - in what is known as a ‘side hustle’ - may be given an escape from the administrative burden of self-assessment.
The government has announced reforms to the self-assessment system today (11 March) that could mean people who make extra money on the side beyond their typical job such as by selling clothes online or dog walking, may no longer have to file a tax return.
It comes as increasing numbers of people have been caught by the self-assessment net in recent years due to frozen tax thresholds. The dividend and capital gains tax allowances have also been slashed, upping the amount of tax to pay on assets.
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Exchequer Secretary to the Treasury, and the minister responsible for HMRC, James Murray said this afternoon that by the end of this parliament the government will alter the thresholds for how much trading income a person can earn before having to report the earnings to HMRC.
This means you may no longer have to worry about completing a tax return when selling goods and services online.
It is the latest attempt by the government to boost the flailing economy by freeing up time for taxpayers to “create the conditions for economic growth.”
It has also been announced that HMRC will aim to improve its customer service by using generative artificial intelligence to point taxpayers to the advice they need on GOV.UK.
In addition, HMRC has begun trialling a system where customers can use their voice as their password, to pass security checks faster and more securely.
Murray said: "From trading old games to creating content on social media, we are changing the way HMRC works to make it easier for Brits to make the very most of their entrepreneurial spirit.
“Taking hundreds of thousands of people out of filing tax returns means less time filling out forms and more time for them to grow their side hustle.
"We are going further and faster to overhaul the way HMRC works to make sure it delivers the Plan for Change that will help put more money in people's pockets."
How is 'side hustle' tax changing?
Currently, individuals have a trading allowance that makes them exempt from tax for the first £1,000 earned each tax year from what HMRC describes as casual services such as babysitting and gardening.
It can also be used when selling items on popular websites such as eBay and Vinted.
If they make profits above this level, they need to submit a tax return.
However, while the tax-free trading allowance will remain the same, the government has announced that it will raise the reporting threshold for trading income from £1,000 to £3,000, so those earning less than £3,000 won't need to file a tax return.
People with taxable income below the increased threshold, for example from “side hustles”, will instead be able to report tax through a new digital reporting service. Taxpayers will have a choice: they can remain in self-assessment if they wish or use the new service. This simplification will help to cut waste and improve services and avoid unnecessary worry for customers, according to HMRC.
Eve Williams, chief executive of eBay UK, said: “This will be welcome news for thousands of UK sellers for whom eBay is a side hustle and a means of supplementing their household income during challenging times.
"By removing the paperwork associated with selling online, hopefully we will help these side hustles grow into fully fledged small businesses."
No date was given for the change but Murray said it would be by the end of this parliament, which would mean by 2029.
Will I have to pay tax on my 'side hustle?'
The Treasury estimates that raising the reporting threshold for trading income from £1,000 to £3,000 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 simple online service.
Laura Suter, director of personal finance for AJ Bell, said: “With HMRC overwhelmed by the number of people calling their helplines and filing tax returns, any move that alleviates this pressure has to be welcomed.
"Changes to the tax system in recent years mean millions more people have been dragged into paying tax, many of them needing help and support from HMRC. But the taxman is finding it all very taxing, and has struggled to meet this surging demand.
“The government itself says that 90,000 of those filing a self-assessment tax return for this income have no tax to pay, meaning they are needlessly filling out paperwork that HMRC is collecting no tax for. Solving these absurd quirks in the tax system should be applauded. However, the timelines on bringing in this measure are spectacularly vague."
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