Side hustle trading threshold raised to £3000 per year

Current UK tax rules mean that anyone earning less than £1,000 in a tax year from a ’side hustle’ does not have to pay tax or declare the income.

James Murray, the UK tax minister, recently announced that the income tax self-assessment reporting threshold for trading income will be increased from £1,000 to £3,000 within the current parliament.

This blog explains more about side hustles, tax allowances, and their impact on filing tax returns.

What is a side hustle?

In recent years, websites such as eBay, Vinted, Airbnb, and Etsy have had to report to HMRC how much their customers make from online selling. These websites have fed the entrepreneurial spirit in the UK and given many people a way to earn more money and increase their household income.

However, a side hustle is not just selling online. Other examples could be taxi driving, food delivery, dog-walking, handyman services, designing or creating content on social media, etc. But how do you define side hustles compared to fully fledged small businesses?

Many fully fledged businesses start as side hustles and grow into full-time businesses. It’s easy to define a side hustle in terms of tax and tax returns. The amount you earn from your side hustle will determine whether it’s treated as a side hustle or a business in terms of HMRC and income tax self-assessment.

What is the trading allowance?

All individuals in the UK are subject to national insurance and income tax. However, each individual gets a tax-free personal allowance before they have to start paying tax.

There is a £1,000 a year allowance for people with a side hustle, in addition to the personal tax allowance of £12,570 for their main income.

Currently, if you earn more than £1,000 from a side hustle, you will have to register as self-employed and complete a self-assessment tax return. This £1,000 threshold is called the ’trading allowance’. However, if you earn even £1 more than the allowance, you must file a tax return to HMRC.

The £1,000 threshold applies to your total taxable side hustle income. So, for example, if you sell things online and create content online, you’ll need to add both incomes together. If your combined gross income exceeds £1,000, you must file a self-assessment tax return and declare your income.

Side hustle tax announcement March 2025

HMRC rule change

In March 2025, the government announced plans to increase the Income Tax Self Assessment (ITSA) reporting threshold for trading income from £1,000 to £3,000 within this parliament.

When will the trading income threshold increase?

No actual date has been set yet. Tax Minister James Murray announced that the threshold for trading income would increase by the end of 2029.

A new online service for reporting income below £3,000

For those earning between £1,000 and £3,000 of trading income, HMRC will launch a simplified online platform to declare and pay any tax owed. This will remove the need to complete a full self-assessment form for those individuals earning between £1,000 and £3,000 in additional income.

Things to note on side hustle tax changes

• If you are not reaching the trading allowance of £1,000 a year, you won’t have any extra tax to pay.

• This only changes the tax reporting threshold to £3,000; it does not change the tax-free trading allowance.

• It affects how individuals report their trading income but not how it is taxed.

• This means earnings between £1,000 and £3,000 may still be taxed (depending on other income earned in the tax year).

• For side hustle earnings above £3,000, individuals must still register for self-assessment, complete a tax return, and pay any tax due on the profits made.

Why have these changes been announced?

Exchequer Secretary James Murray announced that the new online service would help people to spend “less time filling out forms” and give them “more time to grow their side hustle.”

Tax experts predict that instead of filing a tax return, those with lower trading incomes from side hustles will either have to pay via a simple tax bill or potentially through their PAYE tax code.

The Treasury said that this measure will reduce the administrative burden within the tax system, free up time for taxpayers, and fuel economic growth. This measure is predicted to benefit around 300,000 taxpayers, who will no longer need to file a self-assessment tax return.

It’s estimated that 90,000 of these individuals will have no tax to pay and will not need to report their trading income to HMRC in the future. Many others can pay any tax they owe through a new, simple online service.

These changes are part of the government’s Plan for Change as HMRC works to make changes and drive efficiency reform.

Websites such as Airbnb, eBay UK and Vinted share your earnings details with HMRC

For anyone selling online, it’s worth noting that in January 2024, HMRC introduced rules requiring websites and apps to report users’ incomes from their platforms. Before January 2024, HMRC relied on individuals declaring extra income from side hustles.

HMRC also has access to payment sites such as PayPal to track individual payments.

Tax fraud

Failure to declare your income from side hustles will be treated as tax evasion and tax fraud. In the worst-case scenario, this may lead to financial penalties, fines, or criminal prosecution and prison.

Rules for starting an online business, declaring income and paying tax

If you regularly buy and sell stock online to make a profit, HMRC will consider you a sole trader running a business for tax purposes.

If your income before expenses is currently more than £1,000, you must register as self-employed. The deadline for registering as self-employed is October 5, after the end of the tax year in which you started trading.

If you make over £1,000 a year in side hustle revenue, you must declare this to HMRC by 31 January each tax year by filing a tax return. Your profits (i.e. your revenue minus any costs) will be liable for tax.

How much tax will I pay on my side-hustle income?

Sole traders pay tax on their profits. Profit is sales revenue minus costs. HMRC allows you to deduct allowable expenses from your revenue/income and reduces your tax bill.

The UK has numerous personal tax bands and thresholds. You need to calculate your total taxable income from all sources, i.e. salary, side hustle income, interest from bank accounts, etc.

In addition to your £1,000 Trading Allowance, you won’t pay tax on your first £12,570 of gross taxable income. This is called your Personal Allowance. Below are the current tax rates.

Summary

Between now and 2029, the reporting threshold for side hustles trading income will rise from £1,000 to £3,000 gross. This includes people trading clothes online, dog-walking, gardening, taxi driving, delivery services or creating content online.

This change is welcome news for entrepreneurial individuals in the UK. However, tax, self-employment, and online trading can be complex, so it’s advisable to seek help and advice from chartered accountants and tax advisors, such as dns accountants, to ensure you correctly report your income and pay the tax due.

Book a consultation or contact us today at 033 0088 3616, email contact@dnsaccountants.co.uk

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