Side hustle tax: the £1,000 trading allowance, explained
What would you owe? Try the calculatorYour first £1,000 of self-employment income in a tax year can be tax-free, and under that line you may not even need to tell HMRC. The trading allowance is the rule that keeps genuinely small earners out of the system. Once you earn more than £1,000, you register as a sole trader, and the allowance turns into a choice: £1,000 off your income, or your actual expenses. Never both.
Under £1,000: usually nothing to do
The trading allowance is a tax exemption of up to £1,000 a year for trading income: self-employment, casual services like babysitting or gardening, and hiring out personal equipment such as power tools. If your gross trading income across all of it is £1,000 or less in the tax year, it's covered, and gov.uk's position is you "may not have to tell HMRC".
Keep records anyway: money in, dates, what for. If HMRC ever asks, the paper trail is the answer, and the record rules are the same ones you'll need the moment the side hustle grows.
Four situations where you must register even under £1,000, straight from gov.uk: you want to claim a trading loss, pay voluntary Class 2 National Insurance to protect your State Pension record, claim Tax-Free Childcare, or claim Maternity Allowance.
Over £1,000: register, then choose
Earn more than £1,000 in a tax year, 6 April to 5 April, and you must register for Self Assessment as a sole trader. You can trade before registering, so nothing stops the first invoices; the duty arrives with the £1,001st pound.
Then comes the filing choice. You can deduct either the £1,000 allowance or your actual expenses, whichever you claim, not both. The arithmetic is the whole decision: £1,800 of income with £200 of costs leaves £800 taxable with the allowance but £1,600 with expenses, so the allowance wins. The same £1,800 with £1,400 of costs flips it. Because the allowance is "up to £1,000", it can reduce the income to zero but never below: it can't create a loss.
When the allowance is off the table
The allowance doesn't apply to trading income from a company you or someone connected to you owns or controls, from a partnership involving you or a connected person, or from your employer, or your spouse's or civil partner's employer. The classic blocked move: doing weekend work on invoice for the same company that employs you and calling the first £1,000 tax-free. That one doesn't work.
When the side hustle stops being small
Past £1,000 you're a sole trader with normal sole-trader tax: Income Tax and National Insurance on profits, and eventually Making Tax Digital. MTD arrives by gross income, not profit: over £20,000 of qualifying income in 2026-27 means digital records and quarterly updates from April 2028, and bigger side incomes hit the earlier waves. Two minutes on the checker gives you your date, if you have one.
Quick answers
I made £900 gardening this year. Do I tell HMRC?
Usually no: the trading allowance covers it. The exceptions are wanting to claim a loss, voluntary Class 2, Tax-Free Childcare or Maternity Allowance, where registering is required.
Can I take the £1,000 and claim my expenses too?
No. One or the other. Whichever is bigger takes more off your taxable income.
Does the £1,000 mean I owe tax on everything above it?
It means everything above it counts as taxable profit from that trade. Whether tax is actually due depends on your total income for the year: the £12,570 Personal Allowance still applies. The calculator shows the real number.
Can I use it for freelance work I do for my own employer?
No. Income from your employer, or your spouse's or civil partner's employer, is excluded, as is income from your own company or a connected partnership.
When the hustle gets serious, so should the records
SoleTax catches every receipt and mile from day one, so the £1,000-or-expenses choice is made with real numbers, not guesses. 14 days free, no card needed.
Join the betaSources: gov.uk, tax-free allowances on property and trading income, and set up as a sole trader. Checked on 8 July 2026.