A £3,000 side-hustle allowance: more generous than it looks?
People making money from small side businesses will have more room to earn without paying income tax, following a Budget decision to triple the trading allowance. However, the figure relates to what you receive before expenses, not the profit you keep. Will the £3,000 allowance actually save you tax?
The Budget announcement increases the trading allowance from £1,000 to £3,000 from 6 April 2027. It applies to qualifying trading and miscellaneous income, which can include selling products you make or providing services outside your employment. The Self-Assessment reporting threshold for this type of income will also rise to £3,000. The £3,000 is a combined figure across relevant activities, not a separate allowance for every side hustle. It is also distinct from the separate £1,000 property allowance, which is not being tripled.
Suppose you sell handmade goods with annual takings of £2,500 and spend £600 on materials and selling costs. If you otherwise pay tax at 20%, the current £1,000 trading allowance can leave £1,500 of taxable income, producing a £300 tax bill if it is better than claiming your actual expenses. From 2027/28, the £2,500 takings would fall entirely within the new allowance, so there would be no income tax on that trade. The saving is £300, assuming your circumstances are otherwise unchanged. But if your sales are £5,000 and expenses £3,200, claiming actual expenses would leave £1,800 taxable, compared with £2,000 after deducting the flat £3,000 allowance.
The higher limit should remove some small traders from the tax return system, although those required to file for other reasons will still need to submit a return. Anyone already trading should continue to use the £1,000 limit for 2026/27, keep sufficient records of income and costs, and compare the allowance with their actual expenses rather than assuming the larger headline figure will always give the best result.