HMRC has announced a major change to the way it collects tax on ‘side hustles’ with a new £3,000 threshold – but you will still owe just as much tax as before.

The tax office says it will change the rules on ‘side hustles’ and online selling to allow people to earn £3,000 without having to file a self-assessment tax return. Currently, those who sell online, drive a taxi, walk dogs or do gardening jobs and other ‘side hustles’ need to register online to pay tax to HMRC if they earn more than £1,000 profit in a single tax year and fill out a long return on its website with payslip, pension and student loan information all inputted along with expenses, profits and losses on any side hustle.

But in future, the tax office will tweak the rules to allow you to earn £3,000 before you need to register to pay tax through the self-assessment system.

But those affected by the new rules, which start in 2029, are being told that they will still owe tax to the government. Slightly confusingly, you still owe tax on earnings over £1,000 – the actual threshold hasn’t been changed to £3,000.

The difference is that those who do owe tax below the new £3,000 limit will be able to pay via an online service instead of going through self-assessment, HMRC said.

It means that you still owe tax on earnings between £1,000 and £3,000, but you won’t pay that tax via a self-assement tax return.

According to IPSE: “Currently, the trading allowance and the threshold for reporting Self Assessment income are set at the same level, effectively meaning that side hustle incomes lower than the £1,000 threshold are completely free of tax and reporting obligations.

“But whilst the tax reporting threshold is set to increase to £3,000, the tax-free trading allowance will not. This means:

Earnings under £1,000: No tax is owed and no requirement to declare it.

Earnings between £1,000 – £3,000: Tax may still apply on profits, but you can report the income using the ‘simplified online service’ rather than completing a full tax return.

Earnings over £3,000: You must register for Self Assessment and complete a tax return and pay any taxes due on profits.”

For a basic rate taxpayer, 20% Income Tax applied to a profit of £3,000 would land you with a £600 tax bill that would need to be paid through the new online system. For a higher rate taxpayer with an overall income above £50,270, this would be a £1,200 bill. Of course, the amount owed would be higher still if you earned even more than £3,000 and had to go through self-assessment.

The HMRC announcement said: “As part of a bold new package to transform HMRC into a quicker, fairer and more modern body the minister is expected to announce plans to increase the Income Tax Self Assessment (ITSA) reporting threshold for trading income, from £1,000 to £3,000 gross within this parliament.

“This 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 new simple online service. The changes reflect the government’s commitment to driving forward efficiency reform, a key component of its Plan for Change.”