Are you thinking about making some extra money by selling online, turning a hobby into a business or offering your skills and services? Changes to the tax free trading allowance are on the way in 2027 which could make it easier to earn some extra cash with side hustles.
Whether it’s selling unwanted clothes on Vinted, making jewellery to sell online, walking dogs, tutoring, baking cakes or turning a hobby into a small business, side hustles are becoming an increasingly popular way to boost household income. With household budgets under pressure, earning a little extra money can make a real difference. It can also be a way to turn a passion or spare-time activity into something more rewarding financially.
The good news is that the government has announced an increase in the tax-free trading allowance from £1,000 to £3,000. However, there are some important distinctions between selling your own unwanted belongings and actively trading for profit and it’s well worth understanding the rules before you start. Following my appearance on BBC Breakfast this morning, I’ve put together this summary of what you need to know about the new tax free trading allowance for side hustles.
Photo by T on Unsplash
What is changing?
Following the Budget announcement on 28 October 2026, the government confirmed that the trading allowance will increase from £1,000 to £3,000 from 6th April 2027. This means individuals will be able to receive up to £3,000 in qualifying trading or miscellaneous income covered by the allowance, without paying income tax on that income.
The government is also increasing the Self Assessment reporting threshold for trading income to £3,000, which should reduce the administrative burden for people earning relatively small amounts from side hustles. Until the changes take effect, the existing £1,000 trading allowance remains in place.
The intention is to make it easier for people to earn extra money without having to navigate unnecessary tax paperwork, particularly those who are only making relatively small amounts.
What counts as a side hustle?
A side hustle is essentially an activity you undertake to generate additional income alongside your main job, pension or other income.
Examples include:
- Selling handmade crafts, jewellery, artwork or homemade products.
- Buying items from charity shops, car boot sales or auctions to resell for a profit.
- Selling clothes, accessories or other products online.
- Offering services such as dog walking, gardening, cleaning or tutoring.
- Baking or catering for paying customers.
- Creating online content, earning advertising revenue or working as an influencer.
- Freelancing, photography, graphic design or providing consultancy services.
You don’t necessarily need to set up a company to start earning money. Many people operate as sole traders, but you still need to understand your tax responsibilities.
Selling unwanted belongings versus trading for profit
This is one of the biggest areas of confusion and it’s important to understand the difference. If you’re simply having a clear-out and selling unwanted personal possessions, such as clothes, toys, furniture, books or household items, you generally don’t need to pay income tax on those sales.
However, if you start buying items specifically to resell at a profit, making products to sell or regularly offering goods and services commercially, HMRC is likely to regard this as trading.
For example:
- Selling your children’s outgrown clothes or unwanted toys is generally just selling personal possessions.
- Buying bundles of clothing from car boot sales with the intention of reselling them for a profit is trading.
- Selling an old piece of furniture you no longer need is generally a personal sale.
- Buying second-hand furniture, upcycling it and selling it on for profit is likely to be trading.
Don’t assume that every sale made through eBay, Vinted or Facebook Marketplace is taxable. Equally, don’t assume that calling something a hobby means HMRC won’t regard it as trading.
Is the £3,000 allowance on top of your normal tax-free allowance?
The £3,000 trading allowance is completely separate from the standard Personal Allowance, currently £12,570. The Personal Allowance is the amount of income most people can receive before paying income tax, subject to the usual rules. The Trading Allowance is a separate tax relief which can be used against qualifying trading income. This means you can benefit from the trading allowance even if you’re already working and paying tax through PAYE.
For example, someone earning £30,000 through their main job who makes an additional £2,500 from a qualifying side hustle could claim the trading allowance against that additional income, leaving no taxable trading profit. If they earn £4,000, they could claim the £3,000 allowance, leaving £1,000 of taxable trading profit.
You can generally choose between claiming the trading allowance or deducting your actual allowable business expenses but you cannot claim both against the same income. Don’t forget that the allowance is based on gross trading income and not the profit you have left after expenses.
Do I need to tell HMRC?
At present, if your total gross trading income exceeds £1,000 in a tax year, you will generally need to tell HMRC and may need to register for Self Assessment. From April 2027, the Self Assessment reporting threshold for trading income will increase to £3,000.
This should mean fewer people with small side hustles need to complete a full Self Assessment return in respect of that income. HMRC is also developing simpler reporting arrangements for smaller amounts of additional income, so check the latest guidance as the changes are implemented.
If you do need to register for Self Assessment for the first time, the usual deadline is 5th October following the end of the relevant tax year.
Don’t assume that having a full-time job means everything is automatically taken care of. Your employer deals with the tax on your salary through PAYE but additional self-employed income is your responsibility to declare where required.
What about selling on eBay, Vinted and other online marketplaces?
There has been some confusion about online selling and HMRC reporting rules. Since January 2024, online platforms have been required to collect certain seller information and report relevant sales information to HMRC. Generally, platforms may need to report sellers who make 30 or more sales of goods in a calendar year, or receive at least €2,000 (approximately £1,700) from those sales. However, this does not mean you automatically owe tax if you sell 30 items or more.
The reporting requirements are not a new tax. They simply allow HMRC to receive information about activity on online platforms. If you’re selling your own unwanted belongings, you generally won’t owe income tax simply because you have sold lots of items. If you’re buying or making goods to sell for profit, the trading rules are different.
Photo by Andrew Neel on Unsplash
What should you do to avoid getting caught out?
Even if your side hustle is relatively small, it’s sensible to treat it like a business from the outset.
1. Keep records of everything
Keep a record of your sales, income and expenses. A simple spreadsheet can be enough to start with. Record money received, materials purchased, postage, packaging, advertising and any platform fees.
Don’t wait until the end of the tax year to work out how much you’ve earned.
2. Understand your actual costs
Don’t confuse sales revenue with money you actually make. Postage, packaging, fuel, materials, insurance and marketplace commissions can all eat into your earnings.
Work out what you are genuinely making after expenses and consider whether the time involved is worthwhile.
3. Don’t assume you can claim every expense
If you use the £3,000 trading allowance, you cannot also deduct your actual business expenses against that same income. Compare the two approaches to see which is more beneficial.
4. Put money aside
If your side hustle grows beyond the allowance, you could have an additional tax bill. Don’t spend every penny you make without considering whether some needs to be put aside.
5. Check whether you need insurance or qualifications
If you’re providing services such as dog walking, cleaning, beauty treatments or catering, check whether you need public liability insurance, specialist cover, qualifications or local authority permissions.
Don’t assume that because you’re only operating on a small scale, these requirements don’t apply.
6. Check the impact on benefits
If you receive Universal Credit or other means-tested benefits, additional earnings may affect your entitlement. The tax trading allowance does not automatically apply when calculating Universal Credit income, so check the relevant benefits rules separately.
7. Check your employment contract
Some employers have restrictions on secondary employment, particularly where there could be a conflict of interest or competition with their own business.
Watch out for side hustle scams
Unfortunately, where there is an opportunity to make money, there are often scammers looking to take advantage. With this in mind I would be particularly wary of:
Get-rich-quick schemes: Be suspicious of promises of guaranteed earnings or unrealistic returns for very little effort.
Upfront payments: Be cautious about paying for training, starter kits or access to work opportunities before checking that the company is legitimate.
Fake buyers: If selling online, never rely on payment screenshots, emails or messages. Check your own banking app or the official marketplace payment system to confirm that money has arrived.
Courier scams: Be wary of buyers who insist on arranging their own courier and send links asking you to pay fees or release payment.
Requests for personal information: Never share passwords, banking login details or one-time security codes.
Moving conversations off-platform: Keep communications and payments within the marketplace wherever possible, as moving elsewhere can reduce your protection if something goes wrong.
In a nutshell something sounds too good to be true, it most likely is. Research the company, check independent reviews and never rush into handing over money or personal details.
Remember your responsibilities
If your side hustle develops into a business, you may also have responsibilities towards the people buying from you.
Regularly selling goods as a business is different from occasionally selling personal belongings. Consumer protection legislation can give customers rights when buying from traders, including rights relating to faulty goods and, in many online and distance sales, cancellation.
You cannot simply describe yourself as a private seller to avoid these responsibilities. Make sure you understand the rules that apply to the goods or services you’re providing.
Is a side hustle worth it?
Absolutely, provided you go into it with your eyes open. A side hustle can be a great way to make extra money, put an existing skill to use, turn a hobby into something profitable or simply make better use of your spare time.
The increased trading allowance should make it easier for people earning smaller amounts to benefit without unnecessary administration. However, don’t underestimate the time, costs and responsibilities involved. Keep good records, understand the tax rules, protect yourself from scams and make sure you’re actually making a worthwhile return.
Start small, do your research and make sure you understand the rules before turning your spare time into a money-making venture. The aim is to boost your household income, not create an unexpected tax bill or another financial headache.
You might find the following official websites useful.
- HMRC – Increasing the Trading Allowance
- HMRC – Check if you need to tell HMRC about income from online platforms
- HMRC – Tax Help for Hustles
Please note this article provides general consumer information, not individual tax advice. Tax rules can change, so check the latest HMRC guidance if you’re unsure about your circumstances.
