From selling pre-loved items on Vinted to making and selling homemade cakes, side hustles are a popular way to bring in some extra income.
However, knowing what tax you need to pay on this additional income isn’t always straightforward. The Autumn Budget has brought forward some changes to the Trading Allowance, which could make life simpler for people earning money on the side.
What are the new rules for side hustlers?
The changes won’t take effect immediately, but from 6 April 2027, the Trading Allowance will increase to £3,000. This means individuals with qualifying side hustle income will be able to earn more before having to pay tax on it.
Alongside this, the Self Assessment reporting threshold for side hustle income will also increase to £3,000. As a result, many people earning below this amount will no longer need to work out and declare their side hustle income to HMRC.
These changes are intended to make managing additional income less complicated, reducing the amount of paperwork involved and allowing people to retain more of their earnings.
Until the changes come into force on 6 April 2027, the existing £1,000 Trading Allowance will continue to apply.
Could my side hustle benefit?
The Government estimates that up to 1.4 million people could benefit from the change. For some, this will mean a reduction in their tax bill, while others could benefit from having fewer reporting requirements to deal with.
There are plenty of ways to earn additional income outside of a main job. Popular examples include dog walking, private tutoring, creating online content and taking on freelance projects.
The increased allowance is aimed at people running smaller self-employed businesses and earning additional income through qualifying trading activities.
Is there anything I should be aware of?
Although the increased allowance is good news for many, there are still some important rules to understand.
For example, the £3,000 allowance does not apply to every individual side hustle separately. Instead, it covers your total qualifying trading income.
It’s also important to understand that the Trading Allowance is calculated using your gross income, rather than your profit once expenses have been taken away.
If you earn money from several different side hustles, you must combine the gross income from all of them.
Another point to consider is that you generally have to choose between using the Trading Allowance and deducting your actual allowable business expenses. You cannot usually use both against the same income.
How can we help?
Tax can be difficult to navigate, particularly when you’re earning money outside of traditional employment. This can be even more confusing if you’re unfamiliar with Self Assessment and what HMRC expects from you.
Our team of accountants is here to help you make sense of the rules, understand what you need to declare and prepare for the upcoming changes to the Trading Allowance.
If you have questions about your side hustle and the tax implications, speak to our team today.
