In a move that simplifies tax compliance and eases the burden on thousands of taxpayers, the Government has announced that the Income Tax Self-Assessment (ITSA) reporting threshold will increase from £1,000 to £3,000.
While the official implementation date is yet to be announced, this change is expected to remove the requirement for tax returns for around 300,000 individuals, including those earning extra income from selling online or offering small-scale services.
A boost for side hustlers
With side hustles becoming more common, this increase in the tax-free reporting threshold is welcome news.
Whether it is selling handmade crafts, renting out property, or earning through online platforms like Vinted, the shift means that more people can generate extra income without the administrative headache of filing a tax return.
However, even if your earnings fall below the new threshold, it remains important to keep accurate financial records.
Circumstances can change, and staying on top of your income and expenses ensures that you are prepared should your tax obligations change.
HMRC crackdown on undeclared income
HM Revenue & Customs (HMRC) has ramped up its efforts to tackle undeclared income, particularly from online sales.
It has already started issuing letters to individuals suspected of owing tax on earnings from platforms such as eBay, Etsy, and Vinted.
If you receive one of these letters, you have 30 days to respond. Ignoring it could trigger an investigation and potential penalties.
Regular sellers or those making goods specifically to sell for profit may be classed as traders, meaning they could owe Income Tax on their earnings.
Do you need to pay tax on your side income?
Not every side hustle will result in a tax bill. Under the new rules, if your total sales remain below £3,000 in a tax year, you will not need to report the income.
However, exceeding this limit could require you to file a tax return and pay tax on your profits.
Additionally, if you sell personal items worth more than £6,000 (excluding chattels), you could be liable for Capital Gains Tax (CGT).
The CGT exemption has been significantly reduced in recent years, falling from £12,300 in 2022/23 to just £3,000 in 2024/25, bringing more people into the tax net.
How to stay on top of your tax obligations
To avoid unexpected tax liabilities, consider the following steps:
- Keep thorough records – Even if your income falls below the threshold, tracking earnings and expenses is crucial.
- Understand your allowances – If your income exceeds £1,000 (or £3,000 under the new rules), you may need to report it.
- Distinguish between trading and casual selling – Selling personal items is different from running a business. Knowing the distinction helps determine if you owe tax.
- Act on HMRC letters – If you receive a notice from HMRC, respond within 30 days to avoid penalties.
- Seek expert advice – Tax rules can be complex. Consulting a professional can ensure you remain compliant and avoid unnecessary penalties.
Side hustles are an excellent way to boost your income, but they also come with tax responsibilities.
If you are unsure about how these changes impact you, speak to our tax experts for help.