The £1,000 Side Hustle Tax Allowance: Everything You Need to Know in 2026/27.

Most people start a side hustle without ever thinking about tax.

You sell a few things on Vinted. You take on a couple of freelance projects. You start making candles in the kitchen and sell them at a local market. The income trickles in and at no point does it feel like a business.

Then someone mentions tax. And suddenly you are wondering if you should have been declaring this all along, whether HMRC is going to come knocking, and how much you might already owe.

Here is the good news. There is a tax allowance specifically designed for situations like this. It is called the trading allowance, it is worth £1,000 a year, and most people who would benefit from it have never heard of it.

This post explains exactly how it works in 2026/27, who can use it, when it saves you tax, when it does not, and the situations that catch people out

What the Trading Allowance Actually Is

The trading allowance is a tax-free allowance of up to £1,000 available to anyone with trading, casual or miscellaneous income in a UK tax year.

It sits on top of your personal allowance of £12,570. So you can earn up to £12,570 from your day job and an additional £1,000 from a side hustle without paying any income tax or National Insurance on the side hustle income at all.

The allowance covers a wide range of income types. Selling things you have made or sourced. Freelance work. Casual income from the gig economy. Income from the sharing economy like driving for Uber or letting a parking space. Pet sitting. Babysitting. Tutoring. Any income from an activity that is genuinely a trade, even one that started as a hobby.

It does not cover rental income. Property income has its own separate £1,000 allowance with the same name, which is something we will come back to.

The Two Ways It Works.

There are two scenarios depending on how much your side hustle earns in a tax year.

Scenario one is when your total side hustle income is £1,000 or less in the tax year. In this case, the entire income is covered by the allowance. You do not need to register for Self Assessment. You do not need to declare the income to HMRC. You do not need to keep formal accounts. The income is genuinely tax-free.

Scenario two is when your side hustle income is more than £1,000 in the tax year. In this case, you can either deduct your actual business expenses from your income to work out your taxable profit, or you can deduct the £1,000 trading allowance instead. You choose whichever gives you the lower taxable profit.

Once your income crosses £1,000, you do need to register for Self Assessment and complete a tax return, regardless of which method you use.

A Real Example with Real Numbers.

Let me walk you through how this actually works in practice.

Sarah started selling handmade candles on Etsy in May 2026, which falls into the 2026/27 tax year. By the end of the tax year on 5 April 2027 she has made £850 from candle sales. The wax, wicks and packaging cost her £180.

Sarah's total side hustle income is below £1,000. The full £1,000 trading allowance covers all of her income. She does not need to register for Self Assessment. She does not need to declare anything to HMRC. The £850 is hers, tax-free, no paperwork required.

Now imagine Sarah's candle business takes off the following year. In 2027/28 she earns £3,500 from candle sales and her costs are £400.

Sarah's income is now over £1,000 so she needs to register for Self Assessment by 5 October 2028 and file a tax return for the 2027/28 tax year. But she has a choice about how to calculate her taxable profit.

If she claims her actual expenses, her taxable profit is £3,500 minus £400, which is £3,100.

If she claims the trading allowance instead, her taxable profit is £3,500 minus £1,000, which is £2,500.

In this case the trading allowance saves her £600 of taxable profit because the allowance is bigger than her actual expenses. That is the right choice for her.

If her costs had been £1,500 instead of £400, the actual expenses route would give her a taxable profit of £2,000, which is lower than the £2,500 she would have under the allowance. In that case actual expenses would be the right choice.

You always pick whichever method gives you the lower taxable profit. The allowance is not compulsory. It is an option.

The Allowance Is Not Reduced for Part-Year Trading.

Here is something a lot of people get wrong.

If you start trading in February and earn £900 by the end of the tax year, you might think you only get a proportional allowance because you only traded for two months. That is not how it works.

The trading allowance is £1,000 in full, regardless of when in the tax year you started trading. You do not pro-rate it. You do not reduce it. If you traded for one day and earned £400, you still get the full £1,000 allowance against that £400.

This is genuinely useful for anyone who starts a side hustle midway through a tax year. You are not penalised for starting late.

When You Need to Tell HMRC.

This is the question people most commonly get wrong, so it is worth being precise about it.

If your total side hustle income in the tax year is £1,000 or less, you do not need to tell HMRC. You do not need to register for Self Assessment. You do not need to file a tax return. The income is fully covered by the allowance and HMRC does not need to know about it, provided this is the only reason you would otherwise need to file.

If your total side hustle income in the tax year is more than £1,000, you do need to tell HMRC. The deadline to register is 5 October following the end of the tax year in which you crossed the threshold. So if you crossed £1,000 in 2026/27, you need to register by 5 October 2027.

The key word is gross. The £1,000 threshold is your total income before deducting any expenses. So if you earned £1,150 and had £200 of costs, your gross income is £1,150 and you need to register, even though your actual profit was lower.

Watch Out for Selling Fees and Platform Costs.

This is one of the easiest ways to accidentally underestimate your gross income.

If you sell on a platform that takes a fee from your sale before paying you, your gross income is the amount before the fee, not after.

For example, you sell a piece of art on a platform for £900 and the platform takes a 14 percent fee, paying you £774. Your gross income is £900, not £774. The £126 fee is a business expense.

This matters because it can push you over the £1,000 threshold without you realising. If you only see £774 hit your bank account, you might think you are below the threshold and not register. HMRC's view is that your gross income was £900 and you should have registered.

Online apps and bank-feed-based bookkeeping tools sometimes get this wrong because they only see the net amount that hits your account. If you are using any such tool to track your side hustle income, double check that it is recording your gross income, not just the net amount paid.

This is true whether you sell on Vinted, Etsy, eBay, Depop, Amazon Handmade, Facebook Marketplace with paid features, or any platform that deducts a fee before paying you.

What Counts as Trading Income.

The line between a hobby and a trade is one HMRC has thought a lot about. The technical test involves nine factors known as the badges of trade, but in practical terms HMRC looks for these key signals.

1. Are you making things or buying things specifically with the intention of selling them? If yes, that is trading.

2. Are you doing this regularly rather than as a one-off? Selling your old wardrobe on Vinted is not trading. Buying clothes specifically to resell on Vinted is.

3. Are you adding value or processing the items? Buying raw materials, making something and selling it is trading. Selling personal possessions is generally not.

4. Are you doing it for profit? If your motivation is to make money rather than just declutter, that is a strong indicator of trading.

If you are genuinely just selling personal possessions you no longer want, that is not trading and the trading allowance does not apply because there is no trading income to claim it against. You are also not generally liable for income tax on selling personal items, though Capital Gains Tax can apply to high-value items in some cases.

If you are making, buying or sourcing items specifically to sell, you are trading and the £1,000 allowance applies.

The Property Allowance Is Different.

Worth a quick mention because the names are confusingly similar.

The trading allowance covers trading income. There is also a separate £1,000 property allowance that covers rental income from letting property, parking spaces, storage space and similar.

You can claim both in the same tax year if you have both types of income. They are independent allowances. Earning £900 from a side hustle and £900 from letting your driveway means you can claim £900 of trading allowance and £900 of property allowance, with both income streams completely tax-free.

The property allowance has its own rules and is worth a separate post. For now, just remember that the £1,000 trading allowance covers trading income only, not rental income.

When the Allowance Is Not the Right Choice.

The trading allowance is not always the best option. There are three main situations where claiming actual expenses gives you a better outcome.

Situation one is when your business expenses are higher than £1,000. If you spent £1,800 running your side hustle, claiming actual expenses gives you £800 more in deductions than the trading allowance does. Always claim actual expenses in this case.

Situation two is when your expenses are higher than your income, meaning you have a trading loss. The trading allowance cannot create a loss. If you claim it, your taxable profit is zero and the rest of the loss is wasted. If you claim actual expenses, you create a real trading loss that you can carry forward to offset against future profits, which can be valuable.

Situation three is if you receive Universal Credit. The Department for Work and Pensions does not recognise the trading allowance for Universal Credit purposes. You must report your actual income and expenses regardless of which method you use for tax. Using the trading allowance for tax in this situation creates a mismatch between your tax return and your Universal Credit reporting, which can cause problems.

There is also a less common but important rule. The trading allowance cannot be claimed against income from a connected party. This means you cannot claim it on income from a partnership you are a member of, or from a company you control or have a significant interest in. This catches out people who do consultancy work for a company they own or are part of.

Records Worth Keeping Even If You Are Below £1,000.

Even if you think your side hustle is well below £1,000 and you do not need to declare anything, keep basic records of your income and expenses anyway.

The reason is simple. The threshold is gross income, not profit. If you have a particularly good month and tip over £1,000 without realising, you suddenly have a registration obligation and a tax return to file. Reconstructing a year of side hustle records from memory or bank statements is significantly harder than having kept them as you went.

A simple spreadsheet with date, what you sold, who to, how much you earned, and any costs incurred is enough. Even a notebook works. The point is to know your numbers, not to have a sophisticated bookkeeping system.

If your side hustle grows beyond the trading allowance, those records become the foundation for your Self Assessment return. The sole traders who find tax stress-free are the ones who have always kept basic records. The ones who find it stressful are the ones reconstructing twelve months of activity in January.

What to Do If You Got It Wrong.

If you have side hustle income that should have been declared but was not, the situation is recoverable. We covered this in detail in a separate post on missing the Self Assessment registration deadline, which you can read here, but the short version is this.

Register for Self Assessment immediately. File your return as quickly as possible. Pay any tax due. Be honest about what happened. The penalty for a non-deliberate failure to notify can be as low as zero percent if you come forward proactively before HMRC contacts you and the tax due is paid in full.

The longer you leave it, the more expensive it becomes. The cheapest version of this problem is the one fixed today.

The Honest Summary.

The trading allowance is a genuinely useful tax break that most people with side income could be using. The rules are simple in principle.

If your side hustle income is £1,000 or less in a tax year, the allowance covers everything and you do not need to do anything else.

If your side hustle income is more than £1,000, you need to register for Self Assessment by 5 October following the tax year, and you can choose between claiming the £1,000 trading allowance or your actual expenses, whichever gives you the lower taxable profit.

The allowance is not pro-rated for part-year trading. It does not apply to rental income. It cannot be claimed alongside Universal Credit. It cannot be used against connected party income. And it cannot create a trading loss.

If you are running a side hustle and not yet sure where you stand, the time to look at your numbers is now, not in January.

The System That Makes It Easy.

If your side hustle is approaching £1,000 or has crossed it recently, you need to start tracking your income and expenses properly. Not because tax is complicated, but because keeping good records means you have the choice between the trading allowance and actual expenses when the time comes to file.

The UK Sole Trader Tax Template tracks your income and expenses, calculates your tax position automatically, and shows you exactly where you stand throughout the year. Whether you end up claiming the trading allowance or actual expenses, the template gives you the figures you need to make the right choice.

Get the UK Sole Trader Tax Template, £9.99 →

Blog content is for information purposes only and over time may become outdated as the tax landscape is constantly changing, although we do strive to keep it current and up to date. It is written to help you understand your taxes and is not to be relied upon as professional accounting, tax and legal advice. For additional help please contact a professional adviser.