The government announced earlier this year that up to 300,000 people would no longer need to file a tax return.
For anyone with a side hustle alongside their main job, whether selling items on eBay, walking dogs, or online content creation, this news was particularly welcome.
The government positioned this change as a boost to Britain’s entrepreneurial culture, stating: “We are changing the way HMRC works to make it easier for Brits to make the very most of their entrepreneurial spirit”.
It sounded like a straightforward win for small-scale entrepreneurs and gig economy workers.
The Crucial Distinction: No Return vs. No Tax
However, as with most tax matters, the detail is all important. The key point that many people might miss is this: not needing to file a tax return doesn’t mean you don’t need to pay tax.
Currently, there are two £1,000 allowances that can be used to offset trading and property income. This means if a side hustle brings in more than £1,000 annually, you’re likely looking at a tax bill, regardless of whether you need to complete a full self-assessment return.
What’s Actually Changing
The government’s plan involves raising the Income Tax self-assessment reporting threshold for trading income from £1,000 to £3,000. This is the change that will free up those 300,000 people from the paperwork burden of filing returns.
However, HMRC’s projections suggest that while 300,000 people may escape the self-assessment process, around 210,000 of them will still have tax obligations to meet.
The solution to this will be a new online HMRC service that’s currently in development, designed to handle tax payments without requiring a full return.
This change represents a genuine simplification for many small-scale entrepreneurs. However, it’s essential to understand that tax simplification doesn’t mean tax elimination.
If your side hustle is generating meaningful income above the allowances, you’ll still need to factor tax into your financial planning.
The tax team here at Ormerod Rutter are happy to speak with you about your tax obligations, and to ensure you’re meeting your responsibilities while taking advantage of all available allowances and simplifications.
For more information, contact us on hello@ormerodrutter.co.uk or call 01905 777600.
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