What counts
Freelancing, gig apps, selling things you make, reselling for profit and paid side projects all count as trading. Selling your own unwanted things, like clothes or furniture, isn’t trading, even if you sell a lot of them.
HMRC looks at things like whether you bought items to resell, how often you sell, and whether you’re trying to make a profit. If you’re not sure, the GOV.UK guidance has examples.
The £1,000 trading allowance
If your trading income before expenses is £1,000 or less in a tax year, it’s tax-free and you don’t need to report it. If it’s more, you choose: deduct £1,000 instead of your actual expenses, or deduct your actual expenses, whichever saves more.
The allowance is per person, not per side hustle: all your trading income counts towards the same £1,000. You can’t use it on income from your own employer or your partner’s employer.
Budget 2026 raises the trading allowance to £3,000 from 6 April 2027, and the point at which you need to report trading income through Self Assessment to £3,000 as well.
There’s a separate £1,000 property allowance for things like renting out a driveway, and Rent a Room relief of £7,500 a year for letting a furnished room in your home.
How it’s taxed
Your profit is added to your other income, so it’s taxed at your highest rate: 20% for most people with a job, 40% for higher-rate taxpayers. Scotland has its own rates, such as 21% and 42%. You also pay Class 4 National Insurance of 6% on profits between £12,570 and £50,270, and 2% above, but that’s based on your self-employed profits alone.
| Part | Amount |
|---|---|
| Tax-free: the trading allowance | £1,000 |
| Kept from the taxed profit | £3,200 |
| Income Tax (20% of £4,000) | £800 |
| Your side income | £5,000 |
No National Insurance: Class 4 is only due once your profits pass £12,570. On a £60,000 salary, the same side income would cost £1,600 in tax, because it falls in the higher-rate band.
Try your own numbers in the self-employed tax calculator. If you have a student loan, repayments are worked out on your total income, so side income above your threshold adds 9% too.
Platforms report your income
Since January 2024, online platforms such as marketplaces, gig apps and holiday-let sites collect details of what their sellers earn, and send them to HMRC each year. Casual sellers with only a few small sales are usually left out. HMRC can compare the figures with your tax return.
Paying the tax
Register for Self Assessment by 5 October after the tax year ends, then file your return and pay by 31 January. Keep records of what you earn and spend through the year: bank statements and receipts are enough for most.
- Payments on account: once your bill is £1,000 or more you may also have to pay towards next year in advance, but not if 80% or more of your tax is already taken through PAYE. See payments on account.
- Through your tax code: if you’re employed and owe less than £3,000, HMRC can collect it through your tax code over the next year, if you file online by 30 December.
- Making Tax Digital: if your income from self-employment and property is over £50,000, you must keep digital records and send quarterly updates from April 2026, and from April 2027 if it’s over £30,000.
- VAT: you only need to register once your taxable turnover for the last 12 months goes over £90,000.
Set aside at least 20% of your profit for tax if you’re a basic-rate taxpayer, or 40% if you’re a higher-rate taxpayer, and more if you have a student loan or profits over £12,570, so the bill doesn’t catch you out.