What HMRC’s new £3k rule means if you’re self-employed

HM Revenue and Customs (HMRC) has announced that the threshold for filing a Self-Assessment tax return will rise from £1,000 to £3,000 by the end of 2029.

Up to 300,000 freelancers and side hustlers could be freed from the paperwork of filing a tax return. It sounds like a win. But, as with all things tax-related, it’s not that simple. 

If you earn more than £1,000 from self-employment, you’ll still need to report that income and potentially pay tax on it. Feeling a bit lost? You’re not the only one.

In this article, we’ll break down what the new threshold really means for self-employed earners and what you need to do to stay compliant.

What’s the self-assessment threshold, and why is it changing?

All self-employed people need to file a Self-Assessment tax return. This is the method of paying tax when you make an income from your own business, freelancing, or side hustles.

While those in regular employment will be automatically taxed on their wages, self-employed professionals are not. This means they need to fill out a form for HMRC detailing their income and expenses over the whole tax year to work out what they owe. 

As part of a wider overhaul of HMRC, tax minister James Murray announced plans to increase the Income Tax Self Assessment (ITSA) reporting threshold for income, from £1,000 to £3,000 by the end of 2029.

Around 300,000 taxpayers will be affected by these changes. An estimated 90,000 individuals will have no tax to pay, therefore free from reporting their trading income to HMRC. 

If you earn between £1,000 and £3,000, you must still declare your income and pay tax, but you won’t have to fill in the full self-assessment form. Instead, you’ll pay any tax owed through a ‘simplified online service’, part of the government’s efforts to create a more efficient system for HMRC.

Before the panic sets in about getting to grips with a new digital system, remember that these changes won’t happen overnight. The target is currently set for the end of 2029. 

What about the £1k trading allowance?

The £1,000 trading allowance allows self-employed people to earn up to that amount tax-free, without needing to report it. This typically covers things like selling clothes on Vinted or eBay, or making a bit of extra money from dog walking, babysitting, or other small side jobs.

The upcoming increase to the self-assessment filing threshold (to £3,000) won’t change this allowance. You still don’t have to pay tax on your first £1,000 of income. But if you earn between £1,000 and £3,000, you’ll now need to report it and pay tax if it applies.

While these updates are meant to simplify things, having two different thresholds might actually lead to some confusion, especially for side hustlers. To avoid surprises, it’s a good idea to keep track of your earnings with reliable accounting software so you’re clear on what you owe (or don’t) come tax season.

What is HMRC’s Transformation Roadmap?

These changes are part of HMRC’s bigger plan to modernise the UK tax system by 2030, laid out in what’s called the Transformation Roadmap. 

This includes over 50 projects aimed at making things simpler, especially for SME owners and side hustlers, by bringing more services online and cutting back on admin. 

But, while digitalisation should make the process smoother in the long run, there may be a bit of a learning curve at first.

The government expects the new rules will mean around 300,000 people no longer need to file a tax return. That’s a lot of time saved on paperwork that can be better spent elsewhere, and it supports the wider goal of boosting economic growth in the Plan for Change.

While the simplified system sounds like a step in the right direction, we’re still waiting on the finer details, and the changes won’t be happening overnight. In the meantime, if you’re running a side hustle, it’s worth keeping an eye out for further updates from HMRC.