Thousands of people running “side hustles” will no longer have to file a self-assessment tax return when the threshold is raised to £3,000.

Labour said that lifting the ceiling on trading income from £1,000 is part of a review of HM Revenue & Customs and should take effect within this parliament.

The change will affect an estimated 300,000 individuals who supplement their income through activities such as selling items online or dog walking.

It is estimated that about 90,000 people will pay no tax following the change, while others will be able to pay any tax they owe through an online service.

James Murray, exchequer secretary to the Treasury, said: “From trading old games to creating content on social media, we are changing the way HMRC works to make it easier for Brits to make the very most of their entrepreneurial spirit.

“Taking hundreds of thousands of people out of filing tax returns means less time filling out forms and more time for them to grow their side hustle.” This, he said, would “create the conditions for economic growth”.

Online marketplaces such as Vinted and Depop have had to provide sellers’ information directly to HMRC.

Since taking office, Mr Murray has been taking teams of senior HMRC officials to meet firms including NatWest, Octopus Energy, Barclays, John Lewis, and Centrica to learn best practice and innovative approaches to modernising and digiting customer service from the private sector.

This includes the use of generative AI and ‘test and learn’ approaches to improving customer service.

Ellen Milner, director of public policy at the Chartered Institute of Taxation said: “We welcome the government’s focus on simplifying the tax system and improving customer service – rightly two key priorities for HMRC as the tax authority heads into its third decade.

“A more straightforward, easy to navigate tax system could free up business owners and managers to focus on growing their businesses, rather than spending their days overcoming bureaucratic hurdles.

“We especially welcome the announcement of a new approach to dealing with slow-moving income tax queries from agents. Hopefully, in due course, this can be expanded to unrepresented taxpayers and to other taxes.”