Trading allowance for side hustles: £1,000 tax-free limit explained

Summary

Updated March 2026 — Sources: GOV.UK trading allowance, HMRC HS222.

The trading allowance gives casual earners and side hustlers a simple £1,000 tax-free buffer. It reduces admin for small-scale income from freelancing, selling online, or gig economy work.

1. How it works

If your gross trading income (before expenses) is £1,000 or less in a tax year, you do not need to tell HMRC or pay tax on it. This covers occasional eBay sales, tutoring, freelance gigs, and similar casual activity.

2. Gross vs net election

When income exceeds £1,000, choose one approach:

• Deduct actual expenses — report profit (income minus costs)
• Claim £1,000 allowance — deduct £1,000 from gross income instead of actual expenses

You cannot do both. The allowance election is useful when expenses are low.

3. Example — £2,500 side income, £200 expenses

Actual expenses route: £2,500 − £200 = £2,300 profit (taxable). Allowance route: £2,500 − £1,000 = £1,500 profit (taxable). Choose whichever gives the lower taxable amount.

4. When to register anyway

Register for Self Assessment if total income exceeds the personal allowance (£12,570), you want to pay Class 2 NIC voluntarily, or you need proof of income for mortgages or visas.

5. Sources

• GOV.UK — Tax-free allowances on trading income