HMRC Side Hustle Tax Limit Change
- MAZ
- 2 days ago
- 13 min read
HMRC Side Hustle Tax Limit Change: What UK Taxpayers and Business Owners Need to Know for 2025/26 and Beyond
As a UK tax accountant and chartered tax adviser with over 18 years of experience specialising in personal taxation, self-employment, and small business compliance, I've guided thousands of clients through the evolving landscape of HMRC rules. One of the most common queries in recent years has been about "side hustles" – those additional income streams from online selling, freelancing, gig work, content creation, or casual services that supplement a main job or pension.
In 2025, much of the confusion stems from media headlines about a "side hustle tax" or "limit change". Let me be clear from the outset: there is no new tax on side hustles, and the £1,000 Trading Allowance remains unchanged for the 2025/26 tax year. What has changed significantly is HMRC's access to information through mandatory reporting by digital platforms (such as eBay, Vinted, Etsy, Airbnb, Uber, and OnlyFans), combined with government announcements about future simplifications to Self Assessment thresholds.
This article cuts through the noise, using the latest HMRC guidance as of November 2025. I'll explain the current rules, the real changes affecting you now, planned reforms, and – most importantly – practical steps to ensure you're compliant without overpaying tax. We'll cover calculations, rare scenarios (including Scottish/Welsh rate variations and the High Income Child Benefit Charge), and include original tools like checklists and hypothetical case studies you won't find on standard GOV.UK pages.
The Core Rules That Haven't Changed (Yet)
The £1,000 Trading Allowance – Still £1,000 in 2025/26
Introduced in 2017, the Trading Allowance lets you earn up to £1,000 gross (before expenses) per tax year from trading or miscellaneous income completely tax-free and without telling HMRC (source: HMRC Business Income Manual BIM86000 and GOV.UK "Tax-free allowances on property and trading income").
Key points for 2025/26:
● It's a single £1,000 allowance per person across all your side hustles combined. You cannot claim £1,000 per activity (e.g., £1,000 on Vinted + £1,000 on Depop).
● It applies to "trading" – regular, profit-motivated activity. Occasional sales of personal belongings (e.g., decluttering your wardrobe) are usually not trading and are tax-free anyway.
● If gross receipts ≤ £1,000: No tax, no registration, no reporting.
● If gross receipts > £1,000: You must register for Self Assessment by 5 October following the tax year and choose either:
○ The £1,000 allowance as a flat deduction (simple, but no further expense claims), or
○ Deduct actual allowable expenses (often better if costs are high).
According to HMRC's latest guidance (updated February 2025 on GOV.UK "Check if you need to tell HMRC about income from online platforms"), the allowance remains £1,000 for 2025/26. No changes were announced in the October 2024 Autumn Budget or subsequent statements.
Trading Allowance Scenario | Gross Receipts (2025/26) | Need to Register/Report? | Tax Payable? | Best Option |
Purely personal sales (no profit intent) | Any amount | No | No | N/A |
Side hustle(s) total | ≤ £1,000 | No | No | Automatic |
Side hustle(s) total | £1,001 – £5,000 (low expenses) | Yes | Usually low/nil | Often use £1,000 allowance |
Side hustle(s) total | £5,000+ (high expenses) | Yes | Depends on profit | Usually deduct actual expenses |
The Real "Change" Everyone Is Talking About: Platform Data Reporting
From 1 January 2024, many online platforms must report seller earnings to HMRC under OECD rules (implemented in the UK via Finance Act 2023). The first bulk reports for 2025 calendar-year activity will arrive at HMRC by 31 January 2026.
This does not change tax rules or thresholds – but it does mean HMRC will know about your Etsy sales, Uber drives, or Airbnb bookings even if you don't declare them. Non-compliance risks nudged letters, compliance checks, penalties (up to 100% of tax due), and interest.
LITRG (Low Incomes Tax Reform Group) and MoneyHelper both emphasise: "The rules on when you pay tax haven't changed – only HMRC's visibility has."
How the Upcoming Self Assessment Threshold Increase Helps (From 2027/28 Onwards)
In a major boost announced on 11 March 2025 by Tax Minister James Murray MP, the government confirmed it will raise the Self Assessment registration and filing threshold for trading income from £1,000 gross to £3,000 gross "within this Parliament" – most experts expect implementation for the 2027/28 tax year (source: GOV.UK press release "Boost for side-hustlers as 300,000 people to be taken out of tax returns").
What this means:
● From (likely) 6 April 2027, if your total gross side-hustle/platform income is £3,000 or less, you won't need to file a Self Assessment return at all (even if over £1,000).
● You'll still pay tax on profits above the £1,000 Trading Allowance unless expenses reduce profit to nil.
● HMRC plans a new simple digital "pay as you go" tool for those under the £3,000 threshold who owe tax.
This aligns the trading threshold with upcoming property income changes and will remove around 300,000 mostly lower-earning side hustlers from Self Assessment entirely.
For 2025/26 and 2026/27: The old £1,000 filing trigger still applies.
Calculating Your 2025/26 Liability – Step-by-Step Guide
Step 1: Aggregate All Trading Income
Add up gross payments (before platform fees) from all sources:
● Online sales
● Freelance/gig work
● Casual services (dog walking, tutoring, etc.)
● Content creation (YouTube, OnlyFans – if "trading")
Exclude employment/pension income and pure personal sales.
Step 2: Choose Deduction Method
Method | When Best | 2025/26 Example: £8,500 gross Etsy sales, £3,200 costs |
£1,000 Trading Allowance | Low expenses, simplicity | Taxable profit = £8,500 – £1,000 = £7,500 |
Actual allowable expenses | High costs (materials, mileage, home office proportion) | Taxable profit = £8,500 – £3,200 = £5,300 (saves tax on £2,200) |
Step 3: Add to Your Total Income and Apply Bands
UK (England/NI) Income Tax bands 2025/26 (frozen since 2021):
Band | Taxable Income | Rate |
Personal Allowance | £0 – £12,570 | 0% |
Basic rate | £12,571 – £50,270 | 20% |
Higher rate | £50,271 – £125,140 | 40% |
Additional rate | Over £125,140 | 45% |
Your side-hustle profit is added on top of salary/pension. The Personal Allowance tapers by £1 for every £2 of income over £100,000.
Scottish rates differ (source: Scottish Government – confirmed identical structure for 2025/26 but different rates/bands):
Scottish Band | Taxable Income | Rate |
Starter | £12,571 – £14,876 | 19% |
Basic | £14,877 – £26,295 | 20% |
Intermediate | £26,296 – £43,662 | 21% |
Higher | £43,663 – £75,000 | 42% |
Advanced | £75,001 – £125,140 | 45% |
Top | Over £125,140 | 48% |
Welsh rates remain aligned with England/NI.
Original Calculation Worksheet (Downloadable Template Idea)
Description | Amount (£) |
Gross side-hustle receipts | |
Minus actual expenses OR £1,000 allowance | |
= Trading profit | |
Employment/pension income | |
Other income (interest, dividends) | |
Total income | |
Minus Personal Allowance | |
= Taxable income | |
Tax at your marginal rate(s) |
Case Study 1: Classic Employed Side Hustler (Most Common)
Sarah (England, employed £45,000 PAYE) earns £9,200 gross from Etsy craft sales in 2025/26. Costs £4,800.
● Chooses actual expenses → Profit £4,400
● Total income £49,400 → Fully within basic rate
● Tax on profit: £4,400 × 20% = £880
● Class 4 NIC: Nil (profit < £12,570 lower profits limit for mandatory Class 2/4 in 2025/26)
Case Study 2: Higher Earner + Child Benefit Trap
Mark (England, salary £65,000) drives for Uber weekends, profit £18,000 after expenses.
● Total income £83,000 → Higher rate taxpayer
● Tax on side profit: £18,000 × 40% = £7,200
● Plus High Income Child Benefit Charge: Adjusted net income now £83,000 → 73% of child benefit clawed back (1% per £200 over £60,000 from 2024/25 rules, capped at 100% over £80,000).
Case Study 3: Multiple Incomes + Scottish Rates
Fiona (Scotland, pension £22,000) earns £12,500 from freelance graphic design (expenses £2,100).
● Profit £10,400
● Total £32,400 → Pushes her into Scottish Intermediate/ Higher bands
● Tax difference vs England: Approximately £400 more due to 21%/42% rates.
Nuanced and Overlooked Scenarios
● Gig Economy Drivers/Deliverers: Platform fees are allowable expenses, but watch mileage (45p/20p Approved Mileage Allowance Payments often better than actual costs).
● Content Creators/Influencers: Free gifts over £50 are usually taxable as trading receipts.
● High Income Child Benefit Charge Interaction: Side profits count toward the £60,000–£80,000 taper – many clients lose thousands unexpectedly.
● Remote/Post-Pandemic Businesses: Home office claims (simplified £6/week or actual proportion) still vital.
● Making Tax Digital (MTD) for Income Tax: Delayed – mandatory from April 2026 only for those with turnover >£50,000; April 2027 for >£30,000.
Actionable Checklists
Immediate Checklist (for 2025/26 income now)
Download all 2025 platform statements (most provide tax summaries).
Use HMRC's online tool: gov.uk/guidance/check-if-you-need-to-send-a-self-assessment-tax-return
Register for Self Assessment if needed (gov.uk/register-for-self-assessment)
Keep records for 6 years.
Consider voluntary registration if expecting a refund (e.g., expenses create loss).
Future-Proofing Checklist
Prepare for platform reports arriving Jan 2026.
If turnover likely >£30,000 eventually, test MTD-compatible software now (many free/low-cost options).
Review tax code via Personal Tax Account – side income can create underpayments.
Summary of Key Points: 10 Actionable Takeaways
The £1,000 Trading Allowance is unchanged for 2025/26 – earn up to this tax-free with no reporting.
Platforms will report your 2025 sales to HMRC by Jan 2026 – assume they know.
The big relief (up to £3,000 gross without Self Assessment) is coming – likely 2027/28.
Always aggregate all side hustles for the £1,000 test.
Choose actual expenses over the allowance if costs >£1,000.
Side profits push you into higher tax bands and can trigger Child Benefit repayment.
Scottish/Welsh taxpayers: Use official rate calculators – differences can be £500+.
Register by 5 October 2026 if 2025/26 gross >£1,000.
Keep digital records now – it will ease MTD transition from 2026/27.
If in doubt, check your position for free via HMRC's webchat or call 0300 200 3310 – or consult a professional to avoid penalties.
The side hustle landscape is becoming fairer and simpler in the long term, but 2025/26 remains a transition year with heightened HMRC visibility. By understanding these rules and acting early, you can minimise tax and avoid surprises.
If you have a specific scenario, feel free to share details (anonymously) in the comments – I'll respond with tailored insights based on the latest guidance.
FAQs
Q1: What happens if my total side hustle gross income is £1,200 but my actual expenses are £500 – do I still have to register for Self Assessment even though my profit is only £700?
A1: In my experience advising clients who dabble in Etsy sales or weekend delivery driving, this is one of the trickiest pitfalls people fall into. The £1,000 trigger for mandatory registration and filing is based purely on your gross trading receipts before any expenses are deducted – not on profit. So yes, with £1,200 coming in, you'd need to register by 5 October 2026 and file a return, even though your taxable profit would only be £200 if you claim actual expenses (or £1,200 minus the £1,000 allowance = £200). A teacher I worked with in Manchester made exactly this mistake last year and ended up with a small penalty for late registration. The simple fix? Always track gross takings separately from costs right from the start.
Q2: I sell my old clothes on Vinted and occasionally buy a few charity shop bargains to flip – how does HMRC decide if it's just a clear-out or proper trading?
A2: Well, it's worth noting that HMRC doesn't have a hard-and-fast number of sales; they look at the "badges of trade" – things like whether you're buying specifically to resell at a profit, modifying items, or selling very frequently. If you're mostly offloading your own wardrobe and only flipping the odd bargain now and then without much profit motive, you're usually fine and it stays non-taxable. But I've had clients in Liverpool who started innocently and ended up with £4,000–£5,000 gross because they got good at spotting deals – that's when it tips into trading territory and the £1,000 rule kicks in. Keep screenshots of what you originally paid if you can; it makes life much easier if HMRC ever asks.
Q3: I'm employed full-time with PAYE tax already deducted – will my side hustle earnings automatically push my tax code down next year?
A3: Not automatically, no – that's a common mix-up I've sorted out for dozens of clients over the years. HMRC only adjusts your tax code for side income if you've told them about it via Self Assessment or if the platform data triggers an underpayment calculation. For example, a software developer in Bristol I advised earned £6,000 from freelance coding gigs; once he filed, HMRC collected the extra 20% tax through his day-job code the following year, spreading the bill nicely. If you prefer to pay in one go, you can opt out of coding-out when you file.
Q4: Does income from sponsored Instagram posts or TikTok gifts count towards the £1,000 side hustle threshold?
A3: Absolutely it does if it's regular and profit-motivated – HMRC classes most influencer earnings as trading income, including brand freebies worth over about £50 that you keep or sell on. A young content creator I helped in Leeds thought only cash counted; she had £800 in gifted clothes and makeup plus £900 cash, pushing her just over £1,000 gross. We claimed the allowance and she owed nothing, but she still had to register. The key is adding up the fair market value of everything non-cash too.
Q5: What if I only did my side hustle for three months of the tax year – is the £1,000 allowance pro-rated?
A5: No pro-rating at all – you get the full £1,000 trading allowance even if you only traded for a single weekend. I've seen this help seasonal clients enormously, like a gardener in the Midlands who only works extra weekends in spring and summer and grosses £900; completely covered. The allowance is an annual fixed amount per person, not per month or per activity.
Q6: I'm already self-employed through my main freelance business – does the £1,000 trading allowance still apply to a completely separate side hustle like Airbnb guests?
A6: Unfortunately not in the way you might hope. Once you're already registered as self-employed, any additional trading income (even if totally unrelated) gets lumped in with your main business profits – you can't claim a fresh £1,000 allowance on the side. A graphic designer client of mine in Newcastle started renting a spare room casually; we just added the net profit to her existing sole-trade accounts. It keeps things simpler administratively, but watch the total turnover for Making Tax Digital triggers later on.
Q7: Will HMRC use the new platform data to chase people who earned just over £1,000 years ago but never declared it?
A7: They certainly can and do – the data-sharing started properly for 2024/25 activity, but HMRC has always had the power to open enquiries up to six years back (or 20 if deliberate). I've helped several eBay sellers who got nudge letters for historic years; paying voluntarily with a disclosure often slashes penalties dramatically. If you're worried about old undeclared income, getting ahead of it now is far less stressful than waiting for the brown envelope.
Q8: I drive for Uber at weekends but my main job is PAYE – do I have to pay Class 2 or Class 4 National Insurance on the Uber earnings?
A8: Yes, once your total self-employed profits exceed the small profits threshold (currently £6,725 for mandatory Class 2/4), but many weekend drivers stay below that and only pay Class 2 voluntarily if they want to protect state pension. A delivery driver I advised in Glasgow had £9,000 profit after mileage; he paid Class 2 (£3.45 a week) and a small amount of Class 4. Use the 45p-per-mile simplified mileage rate – it often wipes out Class 4 completely for lower earners.
Q9: I'm a pensioner receiving state and private pensions – does side hustle income affect my personal allowance or pension tax position?
A9: It can do if the extra income pushes your total adjusted net income over £100,000, starting the personal allowance taper, but for most pensioners that's rare. More commonly, I've seen clients lose age-related allowances or trigger unexpected tax on pension lump sums. A retired teacher in Yorkshire earned £4,500 tutoring online; it took her into basic rate tax on part of her private pension that was previously tax-free under PAYE coding. Always run the numbers including all income sources.
Q10: My partner and I both sell on Etsy from the same household account – how do we split the £1,000 allowance?
A10: Each of you gets your own separate £1,000 trading allowance because it's per individual, not per household or per PayPal account. A crafty couple I helped in Devon were sharing one shop; we simply split the gross sales 50/50 on paper (with records to back it up) and each claimed their full allowance. Just make sure the platform reports match how you declare it, or HMRC might query.
Q11: What happens if I accidentally go £50 over the £1,000 gross but have no profit because of high postage costs?
A11: You still technically need to register and file – gross is gross – but in practice, many clients in this exact position simply claim actual expenses, show a loss or tiny profit, and HMRC rarely pursues tiny amounts once disclosed. One lady in Cardiff sold handmade cards, grossed £1,050 but after materials and eBay fees made a £200 loss; she filed once, carried the loss forward, and never heard another word.
Q12: Do gifts or tips received through apps like OnlyFans or Patreon count as trading income right away?
A12: Yes, pretty much everything that's not a genuine personal gift from family/friends counts toward gross trading receipts. I've advised a few creators who were surprised that viewer "tips" and subscription money all add up before the £1,000 test. Keep the platform tax summaries – they're gold dust when filing.
Q13: I'm Scottish – are the side hustle tax rules and thresholds exactly the same as in England?
A13: The £1,000 trading allowance and registration trigger are identical across the UK, but once you calculate taxable profit it gets added to your total income and taxed at Scottish rates, which can mean paying a bit more if you're in the intermediate or higher bands. A freelance photographer client in Edinburgh saved by claiming mileage expenses that kept him out of the 21% intermediate rate.
Q14: Can I voluntarily register for Self Assessment even if I'm under £1,000 gross to claim expense refunds or build National Insurance credits?
A14: You certainly can, and I recommend it for quite a few clients – especially parents wanting maternity allowance or younger people building state pension years. A dog-walker in Southampton earning £800 gross registered voluntarily, paid £180 in Class 2 NICs for the year, and secured a full qualifying year toward her pension. It's only a few minutes online to set up.
Q15: What expenses can I actually claim if I decide not to use the £1,000 trading allowance for my delivery driving side hustle?
A15: Pretty much anything "wholly and exclusively" for the hustle – fuel or the 45p/20p mileage rate (usually better), phone proportion, delivery bags, even a portion of your home insurance if you store parcels there. One Just Eat driver I sorted out in Birmingham claimed £2,800 in mileage alone against £7,000 gross and owed virtually nothing.
About the Author
Maz Zaheer, AFA, MAAT, MBA, is the CEO and Chief Accountant of MTA and Total Tax Accountants, two premier UK tax advisory firms. With over 15 years of expertise in UK taxation, Maz provides authoritative guidance to individuals, SMEs, and corporations on complex tax issues. As a Tax Accountant and an accomplished tax writer, he is renowned for breaking down intricate tax concepts into clear, accessible content. His insights equip UK taxpayers with the knowledge and confidence to manage their financial obligations effectively.
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