UK Government Triples Tax-Free Trading Allowance to Support Side Hustles

The United Kingdom government has announced a significant increase in the tax-free trading allowance, trebling it from £1,000 to £3,000. This change, revealed in the Budget, is intended to support individuals engaged in side hustles and those looking to start small businesses.

The new allowance will come into effect from April 6, 2027. Under the revised rules, individuals will not be required to pay income tax or National Insurance on their first £3,000 of total gross income earned from side hustles. For those earning over £3,000, the allowance can still be deducted from their total income, with tax applied only to the remaining balance, or they can deduct actual allowable business expenses if these exceed the £3,000 threshold.

This move acknowledges the growing trend of Britons taking on additional work to supplement their incomes. Side hustles, ranging from dog walking and online tutoring to reselling items on platforms like eBay and Vinted, have become increasingly common over the past decade. Data suggests that approximately 53 percent of adults under 25 earn additional income through such ventures.

Previously, individuals earning more than £1,000 annually from a side hustle were responsible for reporting this income to HM Revenue and Customs (HMRC) via a self-assessment tax return. However, many were unaware of this threshold, with HMRC data indicating that only one in four knew about the £1,000 trading allowance.

Since last year, online platforms are required to report seller data to HMRC. This means marketplaces now receive information about sellers who have made 30 sales or earned £1,700 on any platform within a year. Consequently, HMRC's records of individuals making money from selling goods online have expanded significantly, nearly sixfold in the past year, now including details on 2.6 million people.

Tax experts caution that the £3,000 allowance applies to total trading income before expenses, not profit. This means that combined earnings from multiple side activities, even if the net profit is lower, could exceed the allowance. For example, earning £2,000 from online sales and £1,500 from freelance work would surpass the £3,000 limit, even if the actual profit was considerably less.

It is also important to distinguish between selling unwanted personal belongings and actively buying items to resell for profit, as the former typically does not count as trading. Even with the increased allowance, individuals are advised to maintain accurate records of all sales, income, and business expenses, as online platforms share data with HMRC. Failure to register for Self Assessment and pay tax on undeclared side hustle income can result in penalties and interest charges.

In addition to the trading allowance increase, the government also plans to make online marketplaces responsible for collecting Value Added Tax (VAT) owed by retailers selling on their platforms, starting in October 2027. This measure aims to combat VAT evasion and ensure a level playing field for businesses that comply with tax regulations.