HMRC’s side hustle tax-free allowance will rise from £1,000 to £3,000 in April 2027. Find out who qualifies, what counts and the important catches.
People earning extra money from side hustles will be able to make up to £3,000 a year without paying Income Tax on that money under changes announced in the Autumn Budget 2026.
The government has confirmed it will increase the trading allowance from £1,000 to £3,000, giving people who work for themselves an extra £2,000 of tax-free trading income each year.
The change will start on 6 April 2027, so the existing £1,000 rules still apply for now.
It could benefit people earning extra cash from dog walking, tutoring, freelance work, selling handmade goods and other small businesses.
What is the new £3,000 trading allowance?
The trading allowance is the amount you can earn from certain types of self-employed or casual work without paying Income Tax on those earnings.
At the moment, the allowance is £1,000 for each tax year, which runs from 6 April to 5 April.
But the government’s Budget 2026 announcement confirms this will rise to £3,000 from 6 April 2027.
There’s another important change.
HMRC’s tax legislation announcement confirms that the Self Assessment reporting threshold for trading income will also increase to £3,000.
This means someone who qualifies and earns no more than £3,000 from their side hustles would normally have no Income Tax to pay on that money and wouldn’t need to complete a Self Assessment tax return just because of those earnings.
The change will apply across the UK, including Scotland, Wales and Northern Ireland.
Which side hustles could qualify?
The allowance covers many common ways of earning extra money, including:
- Dog walking, pet sitting and babysitting
- Gardening and odd jobs
- Freelance writing, design and tutoring
- Making and selling crafts
- Buying things to resell for a profit
- Creating online content
- Hiring out personal equipment
You don’t need to be running a large business to qualify.
However, the £3,000 is one allowance for all your qualifying trading income combined, not a separate allowance for every side hustle.
For example, if you earn £1,500 from dog walking and £900 from selling handmade gifts during the 2027/28 tax year, that’s £2,400 altogether.
Assuming you qualify, the full £2,400 would be covered by the new allowance.
If you’re looking for other ways to earn extra cash, we’ve put together more than 50 side hustle ideas.
Skint Dad says:
Now this is the sort of Budget news we like to see!
Whether you’re selling handmade bits, walking dogs or earning a little extra from home, being able to earn up to £3,000 tax-free could make a real difference.
It’s also great news for anyone who’s been thinking about starting a side hustle but hasn’t quite taken the plunge.
Just don’t get too excited yet! The new allowance doesn’t kick in until April 2027, so the £1,000 limit still applies for now.
Does selling on Vinted, eBay or Facebook Marketplace count?
This is where it’s worth knowing the difference between selling your own belongings and running a small business.
If you’re clearing out your wardrobe and selling old clothes, toys or furniture you bought for personal use, you’re not normally trading.
That means you generally don’t need to pay Income Tax on those sales, even if you receive more than £3,000 altogether.
There are separate Capital Gains Tax rules for certain valuable possessions.
However, if you’re buying things specifically to sell for a profit, or making products to sell, HMRC could treat that as trading.
For example, regularly buying clothes from charity shops to resell on Vinted could count towards your trading allowance.
HMRC explains the difference in its official guidance on selling through online platforms.
You can also read our guide to selling unwanted belongings for extra cash.
What happens if you earn more than £3,000?
You can still use the allowance if your qualifying trading income goes above £3,000.
But you would normally need to report your earnings to HMRC, and some of your income could be taxable.
For example, say you receive £3,600 from a side hustle during the 2027/28 tax year.
If you choose to use the £3,000 trading allowance, that leaves £600 to be considered for Income Tax.
That doesn’t mean you’ll have a £600 tax bill. The amount of tax you actually pay depends on your other income and personal circumstances.
There’s an important catch here, too.
The £3,000 limit is based on your total income before expenses, not the profit you have left.
You also cannot claim the trading allowance and deduct your business expenses from the same income.
If your business costs are high, claiming your actual allowable expenses instead could leave you with less tax to pay.
Will you still need to complete a tax return?
Not necessarily.
From 6 April 2027, people whose qualifying trading income is covered by the new allowance would normally not need Self Assessment just for that income.
But if you already complete a tax return for another reason, such as other taxable income, you may still need to submit one.
And if HMRC has already asked you to complete a return, don’t simply stop filing. Check with HMRC first.
There are also restrictions on who can claim the allowance.
For example, it generally cannot be used against income from a business partnership or certain payments from your employer or businesses connected to you.
The separate tax-free property allowance is not being increased to £3,000.
What if you claim Universal Credit?
The higher trading allowance doesn’t mean you can earn £3,000 from self-employment without affecting your benefits.
Universal Credit has different rules from Income Tax.
If you’re self-employed and claim Universal Credit, you must continue reporting your business income and expenses each month, even if your earnings are below the new tax-free limit.
Extra earnings could affect how much Universal Credit you receive.
National Insurance also has its own rules and thresholds, although the trading allowance can affect the profits used to calculate some self-employed National Insurance contributions.
Does anything change immediately?
No. The new allowance is due to begin on 6 April 2027 and will be introduced through the Finance Bill 2026-27.
For the current 2026/27 tax year, the existing £1,000 trading allowance remains in place.
If you earn more than £1,000 from qualifying trading activities before 6 April 2027, you should continue following HMRC’s current reporting rules.
In the meantime, it’s worth keeping a simple record of what you earn and what you spend on your side hustle.
That way, when the new allowance comes into force, you’ll be able to see whether your earnings fall within the £3,000 limit.
