- The trading allowance lets you earn up to £1,000 of gross side income in a tax year without telling HMRC.
- The test is on gross income, not profit, so it’s what you’re paid before any costs come off.
- Once you go over £1,000 you must register for self assessment, and you can claim either the allowance or your actual expenses, never both.
The trading allowance lets you earn up to £1,000 of gross side income in a tax year without telling HMRC or paying tax on it. Go a penny over and the picture changes: you’ll usually need to register for self assessment and declare the lot.
That £1,000 is the line most people are really asking about when they wonder if their eBay sales or freelance work counts. It’s measured on gross income, not profit, which trips up almost everyone.
If you’re weighing up whether your side income has crossed into “I need to sort this” territory, Sleek can get your self assessment prepared and filed without the guesswork.
How much can you earn from a side hustle before declaring it?
You can earn up to £1,000 in gross trading income across a tax year before you have to tell HMRC. This is the trading allowance, and it applies to the total from all your side activities combined, not each one separately.
So if you made £600 selling handmade candles and £500 doing weekend photography, that’s £1,100 gross. You’re over the line, even though neither activity on its own would have been.
The allowance covers a tax year, which runs from 6 April to 5 April. It resets each year, so a good year doesn’t drag a quiet one into self assessment.
What the trading allowance covers
The trading allowance covers income from self-employment, casual services, and hiring out your own kit. HMRC’s own examples include babysitting, gardening, and lending out power tools, alongside anything you’d recognise as freelance or sole trader work.
It’s deliberately broad. The point is to save people with genuinely small side incomes from a full tax return they don’t need.
What it doesn’t cover
A few types of income sit outside the trading allowance, and it’s worth knowing them upfront:
- Income from a partnership you’re part of
- Trading income from a company you or a connected person controls
- Money from your own employer, or your spouse’s or civil partner’s employer
- Rental income, which has its own separate allowance (more on that below)
If your side income falls into any of these, the £1,000 shelter doesn’t apply, and you’ll need to look at the rules for that specific type of income instead.
Gross income, not profit: the mistake people make
The trading allowance is measured against your gross income, which is everything you were paid before a single cost comes off. This is the single biggest misunderstanding, and it catches out people who assume their small profit keeps them under the line.
Say you turned over £1,400 selling prints but spent £500 on materials and postage. Your profit is £900, comfortably under £1,000. But HMRC looks at the £1,400, so you’re over the threshold and need to register.
Always check your turnover against the £1,000 line first, not what's left in your pocket. Profit only matters once you're already in the system and working out what you owe.
Four common situations
Side income comes in a lot of shapes, so here’s how the allowance plays out across the situations people ask about most.
Situation | Gross income | Do you declare? |
Occasional selling of unwanted personal items | Any amount | No, this usually isn’t trading at all |
Regular freelance work alongside a job | £2,500 | Yes, register for self assessment |
Content or platform income (YouTube, ad revenue) | £1,300 | Yes, you’re over £1,000 gross |
Two small side activities combined | £1,100 total | Yes, they’re added together |
The thread running through these is simple. It’s not about how “serious” the activity feels, and it’s not about profit. It’s whether your total gross trading income across the year clears £1,000.
Selling your own things vs trading
Selling off your own possessions and trading are treated very differently, and only one of them counts towards the trading allowance. Clearing out your wardrobe on Vinted or selling an old sofa isn’t trading, so it doesn’t touch the allowance at all.
You cross into trading when you’re buying or making things with the intention of selling them for profit, or doing so regularly and systematically. HMRC weighs up things like how often you sell, whether you’re selling to make money rather than declutter, and whether you’re modifying items to sell them on.
The honest short version: a one-off clear-out is fine and needs no reporting. A pattern of buying stock to flip is trading, and the £1,000 test then applies to what you take in.
Claim the allowance or claim your expenses?
Once you’re over £1,000, you get a choice: deduct the £1,000 trading allowance from your gross income, or deduct your actual expenses instead. You can’t do both, and it’s worth doing the sum before you decide.
The rule of thumb is straightforward:
- If your real business costs are less than £1,000, claim the allowance. It shelters more income than your expenses would.
- If your real costs are more than £1,000, claim your actual expenses instead, because they’ll reduce your taxable profit by more.
For example, on £4,000 of freelance income with £600 of costs, claiming the £1,000 allowance leaves you taxed on £3,000, which beats the £3,400 you’d be taxed on using expenses. Flip the costs to £1,800 and expenses win easily.
If you’re not sure which side of the line your costs fall, our guide to the expenses you can claim walks through what actually counts.
If you go over: registering for self assessment
Once your gross trading income tops £1,000, you must register for self assessment and declare it. The deadline to register is 5 October following the end of the tax year you went over.
So if you crossed the line during the 2025/26 tax year, you needed to register by 5 October 2026. Miss it and HMRC can charge a failure-to-notify penalty, though acting quickly usually keeps things straightforward.
After registering you’ll get a Unique Taxpayer Reference, then file your return and pay any tax by 31 January. If it’s all new to you, here’s how registering for self assessment works step by step, and what’s involved in filing your first return.
Side income when you already have a job
Side income sits on top of your PAYE salary, and the two are taxed together once you file. Your job already uses your £12,570 personal allowance, so in most cases your side income is taxed from the first pound, at whatever rate your total income reaches.
This is exactly the overlap that confuses people who are both employed and self-employed. The key thing is that self assessment doesn’t replace PAYE, it sits alongside it, and you report the side income yourself.
Two points that ease the worry:
- Your employer doesn’t find out. Self assessment is between you and HMRC. Your employer isn’t told about a side hustle you declare.
- Your tax code can change, and if you’d rather keep the PAYE mechanics separate, our guide on being employed and self-employed covers how that works. The detail on second-job tax on a second job mechanics lives on its own page.
If your side income is from property
Property income has its own separate £1,000 property allowance, which works the same way as the trading allowance but sits entirely apart from it. If you earn up to £1,000 in gross rental or land income, you generally don’t need to report it.
Crucially, you can use both allowances at once if you have both types of income. Renting out a driveway for £900 and freelancing for £900 keeps you under each threshold, so neither needs declaring. Note that the property allowance doesn’t apply to letting a room in your own home under the Rent a Room Scheme, which runs on different rules.
Will Making Tax Digital affect you?
Making Tax Digital for Income Tax is now being rolled out, and it can eventually pull larger side incomes into quarterly digital reporting. It’s phased in by qualifying income, which is your gross income from self-employment and property.
The phases stand as follows:
Qualifying income over | You must use Making Tax Digital from |
£50,000 | 6 April 2026 (now in effect) |
£30,000 | 6 April 2027 |
£20,000 | 6 April 2028 |
For most people with a modest side hustle, this is a “not yet” issue, since you need to clear £50,000 gross to be in scope right now. But if your side income is growing fast, our overview of Making Tax Digital for Income Tax explains what the quarterly updates involve and how to prepare.
When a side hustle should become a company
There’s usually a point where a growing side income is better run as a limited company than as a sole trader, though it’s rarely worth it while you’re still under or near the trading allowance. The trigger is normally a mix of rising profits, the tax efficiency of taking dividends, and wanting limited liability.
It’s a genuine decision with trade-offs, not a default upgrade. If your side income is turning into a real business and you’re wondering whether to formalise it, sole trader accounting is often the sensible first step while you weigh up incorporation.
If you should have declared and didn’t
If you’ve earned over the allowance in a past year and didn’t declare it, there’s a routine way to put it right, and it’s more common than people fear. HMRC runs a disclosure process specifically for exactly this, and coming forward voluntarily almost always works out better than waiting to be found.
You’ll typically pay the tax you owe plus interest, and possibly a penalty, though penalties are lower when you disclose before HMRC contacts you. It’s a process thousands of people go through, not a disaster.
The one thing that doesn’t help is ignoring it. If this is you, getting the numbers straight and disclosing is the fastest way to stop the worry.
How Sleek helps with the trading allowance
Working out whether your side income has crossed the £1,000 line is the easy part. The harder bit is registering on time, choosing between the allowance and your expenses, and filing a return that’s right first time.
That’s where a real, in-house accountant earns their keep. Sleek can tell you plainly when you’re fine to carry on as you are, and step in the moment your side income genuinely needs handling, so you’re never guessing or overpaying.
Disclaimer: The preceding information is not legal advice. This content is aimed to provide general guidance. For more formal or legal advice, contact Sleek directly.
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FAQs on the trading allowance
Does selling on eBay or Vinted count as trading?
Not usually. Selling your own unwanted possessions isn’t trading, so it doesn’t count towards the trading allowance however much you make. You only cross into trading when you buy or make items specifically to sell for profit, or do so regularly and systematically. At that point the £1,000 gross test applies.
Is the trading allowance based on profit or turnover?
Turnover. The £1,000 threshold is measured against your gross income, which is everything you were paid before any costs come off. This catches people out, because a small profit can still sit on top of turnover well above £1,000. Always check your total takings against the line first, not what’s left after expenses.
Will my employer find out about my side income?
No. Self assessment is strictly between you and HMRC, and your employer isn’t told about side income you declare. Your tax code might change to collect any extra tax through PAYE, but that doesn’t reveal the source. If you’d rather pay the side-income tax as a lump sum instead, you can usually opt out of coding it in.
Can I claim the trading allowance and my expenses too?
No, it’s one or the other in any given tax year. Claim the £1,000 allowance, or claim your actual business expenses, whichever reduces your taxable income by more. If your real costs are under £1,000 the allowance wins; if they’re over £1,000, claiming expenses leaves you better off.
Do I need to register for self assessment for a small side income?
Only if your gross trading income for the year is over £1,000. Below that, you generally don’t need to tell HMRC at all, though you should keep records in case they ask. Once you go over, registration is a legal requirement, with a deadline of 5 October after the tax year ends.
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What happens if I haven’t declared side income before?
You can put it right through HMRC’s voluntary disclosure route, which is routine and used by thousands of people every year. You’ll pay the tax owed plus interest, and possibly a penalty, but penalties are markedly lower when you come forward before HMRC contacts you. Disclosing early is almost always the better outcome.
Does side income change my tax code?
It can. If you file self assessment and owe tax on side income, HMRC may adjust your tax code to collect it gradually through your PAYE salary the following year. You can ask to pay it as a one-off instead. Either way, the change only affects how the tax is collected, not how much you owe.
