Yes, you may need to pay tax on side hustle income in the UK. If your gross trading income is £1,000 or less in a tax year, the trading allowance usually means you do not need to report it or pay tax. Above £1,000, you generally need to register for Self Assessment and pay tax on your profit.
Let’s understand this with a simple scenario.
When Helly started making personalised birthday cakes at weekends, she saw it as a way to earn extra money alongside her full-time job. A few orders from friends became regular requests, and soon she was receiving payments every month. Then a question occurred to her: did she need to tell HMRC?
If you are earning money through freelance work, online selling, tutoring, crafting, delivery services or another side business, you may be asking the same question: do I need to pay tax on side hustle income?
The answer depends on how much you earn, what you do to earn it, and whether the money represents trading income or something else. The UK’s £1,000 trading allowance can mean you do not need to report small amounts of qualifying trading income, but it is not a blanket exemption for every type of extra money you receive.
This blog post explains the UK side hustle tax rules for 2026/27, including the trading allowance, how tax is calculated, what expenses you can claim, how to report income to HMRC and what to do if you have missed a deadline.
What Counts as Side Hustle Income for UK Tax?
A side hustle is any activity you do to make some extra money outside your regular employment, studies, retirement or other duties. HMRC does not have a separate “side business tax” just because you call the activity a side hustle.
If you are in a trade or business or rendering services to receive payment, the normal trading income rules may apply.
Examples include:
- Vending handmade goods, art or jewellery.
- Baking cakes and/or preparing food for customers.
- Freelance writing, design, photography or consulting.
- Tutoring, coaching or fitness instruction.
- Delivering goods or providing other paid services.
- Creating content or promoting products online.
- The purchase of goods with the intention of resale for profit.
- Providing gardening, cleaning and/or home-based services.
It’s not about whether it is a hobby, but how you’re making the money. Routine purchases for resale with a profit are not the same as the occasional sale of unwanted items from home.
Earnings from work, a rental property, investments or the sale of personal belongings can all be governed by other regulations. The first step in determining if you owe tax is to figure out what the income is.
HMRC provides guidance through its Tax Help for Hustles campaign and its online tool for checking whether additional income needs to be reported.
The £1,000 Trading Allowance Explained
One of the most crucial rules for those who are beginning a side business is the trading allowance.
You do not need to report up to £1,000 of gross qualifying trading income in a tax year to HMRC, as long as the conditions for the allowance are met.
The allowance cannot be used for income from a partnership, or for income from your employer or a person connected to you.
The allowance is based on gross income, not profit. Gross income is the income received before deducting expenses of the business.
For instance, you make and sell handmade cards and earn £850 in one tax year. The cost of the paper, packaging and postage is £250.
The gross trading income is £850, and the profit before tax is £600. If you do not have any other rule triggering the reporting of the gross income, then, as your gross income is below £1,000, you would not be required to report it just on the basis of this trading activity.
Now pretend that your sales are £1400. You earn more than the trading allowance limit – you will need to review whether you need to register for Self Assessment and declare the activity.
If your gross income is over £1,000, you can choose to deduct the £1,000 allowance instead of your actual expenses. You cannot claim both.
It will depend on your numbers. If your costs are much over £1,000, it is better to claim the actual expenses if they are considered eligible.
The £1,000 allowance is a single limit across all your trading activities. You cannot claim £1,000 for each side hustle. Before reporting your income, follow HMRC’s guidance on tax-free allowances.
HMRC Side Hustle Tax Limit Change: £1,000 vs £3,000
In March 2025, the government announced that the Self Assessment reporting threshold for trading income will rise from £1,000 to £3,000 gross within this Parliament. An understanding of what the figures really mean is important.
The tax allowance of £1,000 trading allowance is a tax allowance in relation to qualifying trading income. It is not the same as a reporting threshold for Self Assessment. The £3,000 figure is the reporting threshold, and the trading allowance stays at £1,000.
Online platforms may have obligations to collect and report information about sellers under rules implementing international reporting standards.These rules have applied since January 2024. It does not mean that you will pay tax because you are on a platform that reports your information to HMRC.
The £3,000 change has not been legislated and no start date has been confirmed, so for 2026/27 the current rules apply. Between £1,000 and £3,000 you would still owe tax on your profit, but could report it through a new simple online service instead of a full tax return. Check GOV.UK for the latest position before filing.
Do not imagine that you will make £3000 from a part-time business for 2026/27 without finding out what your tax liabilities will be. Follow current guidance from HMRC and record gross income and expenditure.
Practical takeaway: understand how to tell the difference between the amount that counts for reporting purposes and the amount that is available to offset income and when tax is due. These are correlated, but not synonymous.
How Much Tax Will You Pay on a Side Hustle? Worked Examples for 2026/27
Not all side businesses are subject to the same tax rate. The amount you pay is based on your overall taxable income, allowances you are eligible for, profit from your business and your situation.
The side hustle income is combined with other income to determine Income Tax for many people. If you already have a full-time job, your salary may use some or all of your Personal Allowance and may place you in a particular tax band.
Example 1: A small side hustle
Suppose you earn £700 from selling handmade decorations during the tax year.
The trading allowance will normally exempt you from reporting this income if this is your trading income and the conditions are satisfied.
Example 2: Side hustle income alongside employment
Assume that you earn £32,000 in salary and £3,000 in profit from freelance design work.
The profit of £3,000 may make your total taxable income higher.
The illustration: Income tax on this profit would be £600 if all of the £3,000 profit is within a 20% Income Tax band. No Class 4 National Insurance is due in this example because your profit is below the £12,570 lower profits limit. If you live in Scotland, different Income Tax rates apply. This is a simplified example and does not reflect personal tax calculations
Example 3: Income above the allowance with substantial expenses
If you sell £5,000 worth of handmade products and you have spent £2,200 on materials, packaging, delivery and other costs allowed.
Your profit before tax is £2,800. The taxable profit from trading is usually determined after deducting any allowable expenses, if you are entitled to make the claim for actual expenses.
If you used the £1,000 allowance instead, your taxable profit would be £4,000, so claiming actual expenses is better here.
This is why it’s important to compare the two methods before you make your return.
Which Side Hustles Are Tax Free in the UK?
No side hustle is tax free because of the type of activity. What matters is how much you earn and whether the income counts as trading. Trading income up to £1,000 is covered by the trading allowance, and anything above it may be taxable.
Other income may be declared even if the resulting tax bill is zero, but some income might be included in the allowance or exemption.
Examples to consider include:
- Occasional sales of unwanted personal possessions: If you sell your old clothes or household items, it’s not necessarily trading. Some assets have an intrinsic value, and regular trading for profit may be considered trading.
- Small-scale trading: If the gross trading income falls within the trading allowance (up to £1,000), then this may not have to be reported under the rules.
- Certain casual or hobby activities: If you make money regularly from a product or service and you do so with a businesslike purpose, then it might be considered a business.
- Income covered by a specific exemption or allowance: depends on the source and type of income.
Don’t assume that the money received on a platform, as cash or by bank transfer, is taxable. The key is the underlying activity and the rules for taxation.
Expenses or Trading Allowance: Which Saves You More?
There are two ways you should think about when working out your qualifying trading income: use the trading allowance or work out eligible actual expenses.
The right choice depends on the numbers.
| Example | Gross income | Actual eligible expenses | Profit using expenses | Profit using a £1,000 allowance |
| A | £2,500 | £300 | £2,200 | £1,500 |
| B | £4,000 | £1,800 | £2,200 | £3,000 |
| C | £6,000 | £1,400 | £4,600 | £5,000 |
With these simplified examples, it will only be a beneficial taxable profit if the £1,000 allowance is greater than the actual expenses that are eligible for the allowance. It might be better to deduct if actual expenses exceed the allowance.
Allowable expenses can consist of materials, business-related software, platform fees, postage, packaging or a business portion of certain costs. They will have to comply with the relevant tax requirements.
You should retain invoices, receipts, bank statements and records showing how you calculated business expenses. When using an item for both personal and business use, the only business proportion that may be claimed is the one allowed by the rules.
How to Report Side Hustle Income to HMRC
If your gross trading income is over £1,000, you will need to register for Self Assessment if you are not already registered, unless an exemption applies.
The process usually involves the following steps:
- Calculate your gross income: Total up your receipts for the tax year from the designated activity.
- Review your expenses: Determine what expenses are eligible business expenses and which ones are better claimed as trading allowance.
- Check the reporting requirement: Check with HMRC’s guidance or use their additional income tool to verify the information.
- Register for Self Assessment if required: The normal registration date for a tax year when you’re obliged to register is 5 October after the tax year. For 2026/27, that date is 5 October 2027.
- Complete the relevant tax return: Be accurate in reporting income and expenses.
- Pay any tax due by the deadline: The normal online Self Assessment filing and payment deadline is 31 January following the end of the tax year.
For example, the 2026/27 tax year runs from 6 April 2026 to 5 April 2027. The usual online filing and payment deadline for that year is 31 January 2028.
Keep track of your sales and expenses as you go, rather than scrambling to piece them together when the return is due. When you’re ready to register and file, HMRC’s Self Assessment guidance walks you through it.
What Happens If You Do Not Declare Side Hustle Income?
If you don’t report any taxable income, you could face an unpaid tax bill, interest and penalties. The result will depend on the circumstances, such as whether it was a careless omission, a deliberate omission or an omission that was made voluntarily.
Do not overlook the problem, even if the side business earnings appear insignificant, if you discover that you should have reported them as income but didn’t!
Instead:
- Collect sales, payment and expense information.
- Determine the tax year(s) involved.
- Determine if income should have been reported.
- See what to do if the return was incorrect or if the income should have been disclosed to HMRC.
- If there are possible penalties and/or complex transactions or several years, consult a professional.
Making a voluntary correction may leave you in a stronger position than if HMRC were to write to you, but that depends on the circumstances.
FAQs: Frequently Asked Questions
Can I have a side hustle and a full-time job?
Yes. You can generally run a side hustle while employed. Your side hustle and employment earnings are subject to the tax rules that apply, and you may be obliged to register for Self Assessment if your trading income is above the thresholds or another requirement.
Is the £1,000 allowance per side hustle or in total?
The trading allowance is generally £1,000 across qualifying trading income in a tax year, not £1,000 for every separate side hustle.
Do I pay tax on Vinted or eBay sales?
Selling unwanted personal belongings is not automatically taxable trading income. However, regularly buying items to resell for profit may count as trading. Certain sales of valuable personal possessions can also raise Capital Gains Tax questions. The facts of the transactions matter.
Is the limit changing to £3,000 now?
Not yet. The government plans to raise the Self Assessment reporting threshold to £3,000, but the £1,000 trading allowance stays and no start date has been confirmed.
Do I need to pay National Insurance on a side hustle?
If you are self-employed, you may have to pay National Insurance on your profits, subject to the rules and your circumstances. The position is different from simply receiving occasional money from selling personal possessions.
Does side hustle income affect my tax code?
Depending on your circumstances and how HMRC collects the tax, it can. Tax may be collected via Self Assessment or HMRC can adjust the tax code when the rules permit. Be careful not to assume that the income will be dealt with automatically; check your PAYE and Self Assessment position.
When should I switch to a limited company?
There is no single percentage return at which a limited company becomes the most suitable company type. Take into account anticipated profits, company costs, the way you intend to get the cash out and liability/management prior to incorporation.
Does Making Tax Digital apply to me?
With further stages to come from April 2027 and April 2028, Making Tax Digital for Income Tax started for eligible sole traders and landlords with qualifying income over £50,000 from April 2026. It may be necessary if the qualifying-income test applies and if there is no exemption. Refer to the latest guidance provided by HMRC on MTD.
How MyIVA Can Help With Side Hustle Tax
Managing tax can feel difficult when you are balancing a side business with a job, family responsibilities or studies. Clear records and early planning can make the process more manageable.
MyIVA can support individuals and small businesses with bookkeeping, tax-return preparation and tax planning. Depending on your circumstances, professional support can help you understand which income needs reporting, organise expense records and prepare for Self Assessment.
Support may be particularly useful if you have multiple income sources, are unsure whether you should claim actual expenses or the trading allowance, or need help correcting a previous return.
The goal is not simply to submit a tax return. It is to understand your obligations, keep accurate records and avoid unnecessary uncertainty. Find out more about MyIVA’s services.
Conclusion
If you are asking, “Do I need to pay tax on side hustle income?”, start by identifying the type of income you receive and calculating your gross trading receipts for the tax year.
The £1,000 trading allowance can simplify tax reporting for people with small amounts of qualifying income, but it is not a universal exemption for every kind of extra money. If you earn more, you may need to register for Self Assessment, declare your income and pay tax on your profits.
Keep records of what you earn and spend, compare the trading allowance with eligible expenses, and check current HMRC guidance before filing. If your circumstances are complicated, getting professional advice can help you make decisions with greater confidence.
