The trading allowance lets you earn up to 1,000 pounds a tax year from self-employment and side hustles without paying tax on it, and if your total is 1,000 pounds or less you usually don't need to tell HMRC. Earn more and you can either take 1,000 pounds off your income or claim your real expenses, but not both.
Most UK side hustle tax questions come back to this one rule. Dog walking, a bit of freelance design, reselling on Vinted, making candles: it all sits under the same 1,000 pound allowance. Here's how HMRC applies it, with its own worked example.
The trading allowance in one table
| Your gross side income in the tax year | What HMRC says |
|---|---|
| 1,000 pounds or less | Covered by the allowance; usually no need to tell HMRC (full relief) |
| More than 1,000 pounds | Register for Self Assessment; deduct 1,000 pounds or your expenses, whichever is better (partial relief) |
| Expenses higher than 1,000 pounds | Claiming expenses instead may be better |
| Income and property income | A separate 1,000 pound allowance for each |
Gross means the total before any costs come off. The tax year runs from 6 April to 5 April, not January to December, which trips up a lot of people who check their app's calendar-year totals.
It's one allowance for everything
This is the catch that surprises people. The allowance isn't per hustle. HMRC says it covers all your side hustles and self-employed jobs together. So 600 pounds from tutoring plus 500 pounds from selling crafts is 1,100 pounds, which is over the line even though neither earns 1,000 pounds alone.
HMRC's own example: Jake
HMRC uses a simple case. Jake earned 1,300 pounds in extra income in a year and spent 400 pounds on craft materials and fuel. Because his allowance of 1,000 pounds was bigger than his 400 pounds of expenses, he chose the allowance. He takes 1,000 pounds off the 1,300 pounds and pays Income Tax only on the 300 pounds left.
If Jake's costs had been 1,200 pounds, claiming expenses would have been the better choice. That's the decision you make each year: add up your costs first, then pick the bigger deduction.
What counts as trading
- Self-employment, even part time
- Casual services, such as babysitting or gardening
- Making things to sell
- Buying things to resell at a profit
- Content creation, including gifts and services received for promoting products
Clearing out your own wardrobe now and then usually isn't trading. HMRC's Tax Confident guidance says selling things you no longer want doesn't usually need reporting, but buying things especially to resell and making more than 1,000 pounds does.
When you can't use it
HMRC lists a few cases where the allowance isn't available in that tax year: income from a company you or someone connected to you owns or controls, from a partnership you or someone connected is in, or from your employer or your spouse's or civil partner's employer. It also doesn't apply to trading income from a partnership.
When to register even under 1,000 pounds
- You made a loss and want to claim relief for it.
- You want to pay voluntary Class 2 National Insurance to protect your record.
- You want to claim Tax-Free Childcare based on your self-employment income.
- You want to claim Maternity Allowance based on self-employment.
Otherwise, if your gross trading income goes over 1,000 pounds, HMRC says you must register for Self Assessment by 5 October after the end of that tax year.
Keep records anyway
Even if you're under the limit, HMRC says you must keep records of the income, and it can charge a penalty if records aren't accurate, complete and readable. Statements from the platforms that paid you, or a simple diary of what each customer paid, is enough. A spreadsheet on your phone, updated whenever money lands, does the job.
Allowance or expenses: a quick test
- Total your gross income from every side hustle in the tax year.
- Total the costs you could claim: materials, fuel, fees, equipment you bought for the work.
- If costs are under 1,000 pounds, the allowance usually wins.
- If costs are over 1,000 pounds, claiming them usually wins, and only expenses can create a loss you can claim relief for.
Whichever you pick, you can't mix them for the same income. And remember the separate property allowance: renting out a driveway or storage space has its own 1,000 pounds, so it doesn't eat into your trading allowance.
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My verdict
The trading allowance is one of the most useful rules in UK tax for anyone with a side income. Know your total across every hustle, check it against the 1,000 pounds, and compare the allowance with your real costs each year. If you sell online, my guides to selling on Vinted and what eBay takes pair well with this, and my freelancer tips cover the rest.
Frequently asked questions
How much can I earn from a side hustle before paying tax in the UK?
Up to 1,000 pounds a tax year from all your side hustles combined, under the trading allowance. Above that you register for Self Assessment and pay tax on the profit.
Is the trading allowance per business?
No. HMRC says it covers all your side hustles and self-employed jobs together, so add every source up.
Can I claim expenses and the trading allowance?
No. It's one or the other. If your costs are more than 1,000 pounds, claiming expenses may be better.
When do I need to register for Self Assessment?
If your gross trading income is over 1,000 pounds, HMRC says register by 5 October after the end of that tax year.
Does renting out my driveway count towards the trading allowance?
No. HMRC treats that as property income, which has its own separate 1,000 pounds property allowance.
Do I need to keep records if I'm under 1,000 pounds?
Yes. HMRC says you must keep records of the income, such as payment statements or a diary of what each customer paid.
Do I need to tell HMRC about selling my old clothes?
Usually not. HMRC says selling things you no longer want doesn't usually need reporting, unless you're buying items to resell.
