When small earnings from selling, making or freelancing stay tax free, when they must be reported, and why the widely shared £3,000 story is not what people think.
Zazentax Simplification Series, Part 3 of 3 · Updated July 2026 · Reading time: about 6 minutes
Somewhere between clearing a wardrobe on an online marketplace and running a small weekend business, a quiet worry appears: should HMRC (His Majesty’s Revenue and Customs, the United Kingdom tax authority) know about this? The anxiety has grown since online platforms began sharing seller information with HMRC, and it has been fed by confident social media posts that are, in large part, wrong. The actual rule is short, and it fits in one sentence.
If your total income from casual or self-employed trading is £1,000 or less in a tax year, measured before deducting any costs, it is not taxed and you do not need to tell HMRC about it at all. That is the trading allowance. Everything else in this article is simply the detail around that sentence, including the part most posts get wrong.
How the Allowance Works Below the Line
The trading allowance is £1,000 of gross trading income per tax year, available to individuals. Gross means before expenses, which is the detail that catches people out: someone with £1,100 of sales and £400 of costs has gross income above the allowance, even though their profit is only £700. Moreover, if you run more than one small venture, the £1,000 covers the combined income of all of them together, not £1,000 each. The allowance belongs to individuals only; a partnership cannot use it.
One boundary matters before anything else: the allowance applies to trading, meaning making, selling or providing services with a view to profit. Simply selling your own unwanted possessions, such as old clothes or a used games console, is not trading at all and is not taxable regardless of the amount, unless the items are individually valuable enough to trigger a different tax on gains.
Key point: Below £1,000 of gross trading income there is nothing to pay and nothing to file. The allowance is automatic, so no claim, form or registration is needed.
Above £1,000: Report, Then Choose the Better Deduction
Once gross trading income passes £1,000, the income becomes reportable in the normal way, which means registering for Self Assessment (the annual return through which individuals report untaxed income) by 5 October following the end of the tax year concerned. Reportable does not necessarily mean heavily taxed, because at this point the allowance changes role and becomes a choice.
You may calculate your taxable trading income in one of two ways. Either deduct your actual allowable expenses from your income, or deduct a flat £1,000 instead. You cannot do both. Consequently, the decision is a single comparison: if your real costs are below £1,000, the allowance wins; if they are above £1,000, claim the real costs.
Consider Amira, who sells art prints online alongside her job. In 2026/27 her sales are £2,400 and her costs, mostly printing and postage, are £350. Claiming actual expenses would leave £2,050 taxable. Electing the allowance instead leaves £2,400 minus £1,000, which is £1,400 taxable. The allowance shelters an extra £650 of income, and for a basic rate taxpayer that is £130 of tax saved by ticking a different box. The choice is not permanent; it can be revisited every year as her costs change.
Action required: The election has a deadline: it must be made within one year of the 31 January filing deadline for the tax year in question. Review the comparison each year, because the better option follows your expenses, and these rarely stay still.
The £3,000 Story: What Is Actually True
A claim now circulates widely that side hustle income up to £3,000 is becoming tax free. It is not. The government has announced an intention to raise the reporting threshold for trading income from £1,000 to £3,000 within this parliament, with a simplified online service planned for people earning between those figures. Two corrections follow. First, the change is not yet law, so in 2026/27 the £1,000 rules on this page still apply in full. Second, even once implemented, it changes how income is reported, not whether it is taxed: earnings between £1,000 and £3,000 would still be taxable, merely declared through a lighter process instead of a full return. Treating £3,000 as tax free today would be an expensive misreading.
The platform reporting rules add a final reason for accuracy. Online marketplaces are required to collect and send seller information to HMRC each January, so HMRC increasingly knows about trading income before the trader declares it. The comfortable position is not invisibility; it is a correct understanding of a genuinely generous rule.
Key Takeaways
- Gross trading income of £1,000 or less in a tax year is tax free and requires no registration, no return and no claim.
- Gross means before expenses, and the £1,000 covers all your trades combined; partnerships are excluded.
- Selling your own used possessions is not trading and is generally not taxable at all.
- Above £1,000, register for Self Assessment by 5 October after the tax year ends, then each year deduct whichever is larger: real expenses or the flat £1,000. Never both.
- The £3,000 change is a proposed reporting simplification, not a tax exemption, and it is not yet in force; meanwhile platforms already report seller income to HMRC.
Earning on the Side and Not Sure Where You Stand?
Clarity in one reply, not twenty forum threads. A quick check tells you whether you need to report at all, and which deduction leaves you paying the least.
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Hey, I am Andrei Spătaru. I am determined to make a business grow. My only question is, will it be yours?
