Side Hustle Tax-Free Allowance Rises to £3,000

Good news for anyone earning extra money alongside their regular job. The government has announced that the tax-free trading allowance for side hustles will triple from £1,000 to £3,000 from 6 April 2027.

Whether you're selling products online, freelancing in your spare time, or earning money from a small business idea, the change could mean keeping more of what you earn and dealing with less paperwork.

Prime Minister Andy Burnham shared the announcement on Facebook, explaining how the new allowance will benefit people earning additional income.

What Is Changing for Side Hustles in April 2027?

Currently, the UK's trading allowance lets you earn up to £1,000 a year from qualifying self-employed activities without paying Income Tax on that income.

From 6 April 2027, the allowance will increase to £3,000 per tax year. The threshold for reporting trading income through Self Assessment will also increase to £3,000.

The government estimates that up to 1.4 million people could benefit, with approximately 400,000 seeing an average reduction of £380 in their tax bills.

For someone earning a little extra from a side business, the change could make a meaningful difference.

Importantly, the new allowance won't apply until the 2027/28 tax year. If you're earning side-hustle income during the current 2026/27 tax year, the existing £1,000 allowance still applies.

What Counts as Side-Hustle Income?

A side hustle is generally an activity you carry out to earn additional income, often alongside your main employment.

Examples include:

• Selling handmade products or buying items to resell for profit.

• Freelance work, such as graphic design, photography or writing.

• Dog walking, pet sitting or private tutoring.

• Providing beauty treatments, gardening or other services in your spare time.

There's an important distinction between selling your unwanted personal belongings and running a business.

For example, selling an old coat on Vinted for less than you originally paid would not normally count as trading income. Regularly buying clothing specifically to resell for profit, however, is more likely to be considered trading.

The trading allowance applies to your total qualifying trading income before expenses, across your side hustles combined.

What If Your Side Hustle Earns More Than £3,000?

You can still earn as much as you like from a side hustle. However, once your qualifying trading income exceeds £3,000 in a tax year, you will generally need to report it to HMRC.

You may also have to pay Income Tax on your profits, depending on your circumstances.

There are two main ways to calculate your taxable trading income:

Using the trading allowance: You can deduct the £3,000 allowance from your qualifying trading income instead of claiming individual business expenses.

Claiming allowable expenses: Alternatively, you can calculate your profits by deducting eligible business expenses from your income.

You cannot claim both the trading allowance and actual business expenses against the same trading income.

For example, if your side hustle generates £6,000 in annual sales but you spend £4,000 on allowable business expenses, claiming those expenses could be more beneficial than using the £3,000 trading allowance.

This is where accurate bookkeeping becomes very important. Keeping records of what you earn and spend helps you understand your actual profit and choose the most appropriate way to calculate your tax.

Do You Need to Declare Side-Hustle Income If You're Already Employed?

Yes, potentially. Having a full-time or part-time job where your employer deducts tax through PAYE doesn't automatically cover income from a separate side hustle.

Your employment income and self-employed earnings are treated differently for reporting purposes, although both can affect your overall Income Tax position.

If your side hustle exceeds the relevant reporting threshold, you will generally need to complete a Self Assessment tax return, even if your main salary is already taxed through PAYE.

For example, you might earn £28,000 a year from your regular job and another £5,000 from freelance work.

Your employer will continue handling PAYE deductions from your salary, but your freelance income will need to be accounted for separately. HMRC will use the information in your Self Assessment to calculate any additional tax due.

The amount you owe will depend on your taxable profits, applicable allowances and other income.

Why Bookkeeping Matters When Your Side Hustle Starts Growing

When you're only earning a small amount, keeping track of your side-hustle income might seem straightforward.

However, as sales increase and expenses start adding up, it's easy to lose track of how much profit you're actually making.

Good bookkeeping helps you maintain accurate records, identify allowable business expenses and prepare the information needed for your Self Assessment.

It can also help you understand whether your side hustle is becoming profitable enough to develop into a larger business.

You don't need to wait until your tax return is due to start organising your finances. Establishing good bookkeeping habits early can save considerable time when your business grows.

Need Help With Your Side-Hustle Tax or Self Assessment?

At Strive, we help sole traders and people earning additional income understand their bookkeeping and accounting obligations.

If you're employed through PAYE but also earn money from a side hustle, we can help you keep your business records organised, calculate your taxable profits and prepare and submit your Self Assessment tax return.

Whether your side hustle is already generating regular income or you're approaching the reporting threshold, our team can help you understand what needs to be declared and make sure your accounts are handled correctly.

We’ll complete and file your Self Assessment tax return for you, from just £100 + VAT, and we also offer ongoing bookkeeping and accounting support for sole traders who need help throughout the year.

Get in touch today to discuss your side-hustle income and find out how we can help.