The trading allowance is £1,000 of gross income — before you take a single expense off. Not £1,000 of profit. That distinction decides whether you have to tell HMRC about your side hustle at all, and it is the point most articles skate over.
If your gross trading income for a tax year is £1,000 or less, you generally do not need to tell HMRC and do not need to declare it on a return. Go over £1,000 and you must register for Self Assessment by 5 October following the end of that tax year — even if your profit after costs is tiny, or nil.
The allowance is still £1,000 — and the £3,000 figure is not an increase to it. The £3,000 is a separate Income Tax Self Assessment reporting threshold for trading income. The trading allowance is the exemption in ITTOIA 2005 Part 6A Chapter 1; the reporting threshold is a different measure doing a different job, and conflating the two is the standard error in commentary. Either way there is still no legislated commencement date. What has moved is the official timing: HMRC’s campaign site now says a new online reporting tool is coming by 2029, and that people earning between £1,000 and £3,000 will use it instead of filing a Self Assessment return. Until that tool exists, the £1,000 allowance and the Self Assessment route are what apply.
What the trading allowance covers
It is a tax exemption of up to £1,000 a year for individuals with trading income from:
- self-employment
- casual services — babysitting, gardening, dog walking, odd jobs
- hiring out personal equipment — power tools, camera kit, a trailer
It is one allowance across all your trades, not one per trade. Sell prints on Etsy and walk dogs at weekends and you get £1,000 in total.
The property allowance is separate. If you have both trading and property income, you get a £1,000 allowance for each.
It does not apply to trading income from a partnership.
Full relief and partial relief
These are HMRC’s own terms and they describe two different outcomes.
Full relief — gross trading income of £1,000 or less. The income is exempt. You do not have to tell HMRC or put it on a return. You must still keep a record of the income.
Partial relief — gross trading income above £1,000. You can deduct the £1,000 allowance instead of your actual expenses, and pay tax on the rest. You cannot do both.
The choice is yours, and you should make it deliberately every year. Use whichever gives the lower taxable figure.
| Your situation | Better option |
|---|---|
| Expenses under £1,000 | Claim the allowance |
| Expenses over £1,000 | Claim actual expenses |
| Expenses exceed your income (a loss) | Claim actual expenses — the allowance cannot create a loss |
Worked example 1: the allowance wins
Gross income £4,000, actual expenses £600.
- Claim the allowance: £4,000 − £1,000 = £3,000 taxable
- Claim actual expenses: £4,000 − £600 = £3,400 taxable
The allowance is better by £400 of taxable profit. For a basic rate taxpayer that is £80 of tax saved.
Worked example 2: actual expenses win
Gross income £5,000, actual expenses £2,400.
- Claim the allowance: £5,000 − £1,000 = £4,000 taxable
- Claim actual expenses: £5,000 − £2,400 = £2,600 taxable
Actual expenses are better by £1,400 of taxable profit — £280 of tax for a basic rate taxpayer.
One more rule. Under partial relief you cannot deduct more than the amount of your income, so the allowance can never produce a loss. If your costs genuinely exceed your income and you want to claim loss relief, you must use actual expenses and file a return.
What you give up by claiming the allowance
If you claim the trading allowance you cannot deduct any expenses or capital allowances. That includes the £1,000-a-year vehicle, home working and premises flat rates. It is a clean swap, not a top-up.
There is a knock-on effect worth knowing. Where you calculate taxable profit by deducting the trading allowance rather than actual expenses, your income is reduced by the allowance for the purposes of tax credits, the High Income Child Benefit Charge, student loan repayments and married couple’s allowance. Income for Universal Credit purposes is not affected by the allowances.
When you cannot use the allowance at all
You cannot use the trading or property allowances in a tax year if you have any trade or property income from:
- a company you or someone connected to you owns or controls
- a partnership where you or someone connected to you are partners
- your employer, or the employer of your spouse or civil partner
That last one matters more than it looks. Doing freelance work on the side for the company that already employs you — or for your partner’s employer — takes the allowance off the table entirely for that year, across all your trades.
When you should register even under £1,000
The £1,000 exemption removes an obligation. It does not stop you volunteering. You must register for Self Assessment and declare the income if:
- you have made a loss and want to claim relief for it
- you want to pay voluntary Class 2 National Insurance to help qualify for benefits and the State Pension
- you want to claim Tax-Free Childcare based on your self-employment income
- you want to claim Maternity Allowance based on your self-employment
You can still use the trading allowance on the return in those cases. For 2026/27, voluntary Class 2 is £3.65 a week, and at profits of £7,105 or more Class 2 is treated as paid automatically — so the voluntary route matters most to people whose side hustle is genuinely small.
Platform reporting: what the emails are about
Since 1 January 2024, digital platforms — marketplaces, gig apps, short-let sites — have had to collect details about their sellers and report them to HMRC. Information for a calendar year is reported by the following 31 January.
Your details will not be reported if you make fewer than 30 sales of goods in a calendar year and receive no more than €2,000 (about £1,700) for those sales. Both conditions have to be met — and the platform must have facilitated only goods sales for you. If it also handled a service or a property rental, the exclusion is lost entirely, and multiple accounts on the same platform are added together.
Receiving a copy of a platform report does not mean you owe tax. HMRC’s own guidance says so. You pay tax if you are trading or making a capital gain. Clearing out the loft and selling the contents is normally neither. Buying or making goods in order to sell them at a profit normally is.
Two practical points. Platforms report on the calendar year; your tax return runs on the tax year to 5 April, so the figures will not match. And the report shows income after the platform’s fees and deductions — you still need your own records.
A separate article covers platform reporting in depth.
Records you must keep
Even under full relief you must keep a record of the income. HMRC suggests invoices, a spreadsheet of receipts, emails confirming payments, statements from the payer, bank statements, pay-in records, or an appointments diary. Penalties can apply where records are inaccurate, incomplete or not retained.
If you do end up filing, sole traders and landlords must keep records for five years after the 31 January filing deadline for the year concerned.
Frequently asked questions
Is the trading allowance £1,000 of profit or £1,000 of sales?
Sales. It is gross income — the total you would put on your tax return before any expenses or allowances are taken off. Turn over £1,400 and spend £900 on materials and your gross trading income is £1,400, so you must register even though your profit is £500.
Has the trading allowance gone up to £3,000?
No — and the £3,000 is not an increase to the trading allowance at all. It is a separate Income Tax Self Assessment reporting threshold for trading income, while the trading allowance is the ITTOIA 2005 Part 6A Chapter 1 exemption. The two are legally distinct. The allowance is still £1,000, and the reporting threshold has no legislated commencement date. HMRC’s campaign site now says a new online reporting tool is coming by 2029, which people earning between £1,000 and £3,000 will use instead of a Self Assessment return. When it arrives it removes the return requirement rather than the tax.
Can I claim the £1,000 allowance and my expenses?
No. It is one or the other. Work out your taxable figure both ways each year and use whichever is lower. If your expenses come to more than £1,000, actual expenses will win.
Do I need to declare a side hustle if I already have a job?
If your gross trading income is over £1,000, yes — regardless of your PAYE earnings. Your employment income uses the Personal Allowance and basic rate band first, so the side hustle profit is usually taxed at your marginal rate from the first pound.
An online platform sent me a report. Do I owe tax?
Not automatically. A platform reporting your details to HMRC does not create a tax liability. You owe tax if you are trading or have made a capital gain. Selling personal possessions from your home is unlikely to be either. Check the figures against your own records — platform reports run on the calendar year, not the tax year.
Getting it right without overthinking it
Most side hustles come down to two questions: is gross income over £1,000, and are actual expenses more or less than £1,000. Answer those and everything else follows.
SmartFiling handles Self Assessment and MTD for Income Tax on a fixed fee, including working out whether the trading allowance or actual expenses leave you better off. Every submission is reviewed by an ICAEW Chartered Accountant, and turnaround is three weeks from receiving your records.
