Side hustle tax: the £1,000 trading allowance and what HMRC already sees

Online platforms now pass seller information to HMRC automatically. That change generated a great many alarming headlines, and a great deal of unnecessary worry among people selling old clothes and unwanted furniture.

The reporting rules did not create any new tax. What they did was make existing obligations far more visible. This guide explains what is actually taxable, what the £1,000 trading allowance covers, and where the line between decluttering and trading really sits.

At a glance

What the platforms report

Digital platforms are required to collect and report seller details to HMRC, and the threshold that everyone quotes is narrower than people think. A platform does not have to report you only if you make fewer than 30 sales of goods in a calendar year and those sales come to less than €2,000 (about £1,700). Both limbs must be met, and multiple accounts on the same platform are added together.

Here is the part that catches people out: that exclusion covers the sale of goods only. There is no equivalent threshold for services or for rental income. If you let a room on Airbnb, drive for a ride-hailing app, deliver food, rent out your car, or sell freelance work through a platform, you are reportable from the first pound — one booking is enough. Being reported is not the same as owing tax, but the data reaches HMRC either way, so the safe assumption is that anything you earn through a services platform is visible to them.

The platforms affected include marketplaces such as eBay, Vinted, Etsy and Depop, accommodation platforms such as Airbnb, and gig and delivery platforms. What is reported is identifying information along with the number of sales and the amounts received.

Two points are worth being clear about. First, this is reporting, not taxing — HMRC receives data and decides what, if anything, to do with it. Second, the thresholds trigger reporting, not liability. Being reported does not mean you owe tax, and not being reported does not mean you do not.

The crucial distinction: selling possessions vs trading

This is the heart of it, and it is where nearly all the confusion sits.

Selling your own unwanted possessions is not trading. If you clear out your wardrobe, sell the pushchair your children have outgrown, or move on furniture that no longer fits, you are not running a business. There is no income tax on the proceeds, however large the total, because you are almost always selling for less than you paid.

Capital gains tax can in principle apply to personal possessions sold for more than £6,000 each — relevant to antiques, jewellery or collectables, and essentially never relevant to second-hand clothes.

Buying or making things to sell is trading. If you buy stock to resell at a profit, make items to sell, or provide services for payment, that is a trade and the profits are taxable.

HMRC applies a set of tests known as the badges of trade. The practical questions are: did you acquire the item intending to sell it at a profit? Is there a pattern of repeated, organised transactions? Did you modify or improve it to make it more saleable? Is it advertised and promoted like a business? A single "yes" is not decisive, but a run of them points firmly at trading.

How the £1,000 trading allowance works

If you do have trading income, the first £1,000 of gross income in a tax year is tax-free.

Gross means before expenses. This is the detail people get wrong most often: the test is on turnover, not profit. Someone with £1,400 of sales and £600 of costs has £800 of profit but £1,400 of gross income — over the allowance, and therefore required to report.

Where gross trading income is £1,000 or less, there is nothing to declare and no return needed on that account. Above £1,000, you have a choice each year:

• Claim the trading allowance — deduct a flat £1,000 from gross income and pay tax on the rest, claiming no expenses at all.
• Claim actual expenses — deduct your real costs instead, and not the allowance.

You take whichever is better. On £3,000 of sales with £400 of costs, the allowance gives taxable profit of £2,000 against £2,600 the other way. On £3,000 of sales with £1,800 of costs, actual expenses win comfortably.

There is a separate and equally sized £1,000 property allowance for rental income, and you can use both in the same year if you have both kinds of income.

What to do if you are over the threshold

1. Register for Self Assessment by 5 October following the end of the tax year. See our guide to registering for Self Assessment — registration is slow, so leaving it late risks the January deadline too.
2. Keep records from the start. Sales, costs, platform fees, postage and packaging, mileage. Reconstructing a year of eBay postage costs in January is miserable.
3. Work out which method wins — the £1,000 allowance or actual expenses. You can choose differently each year.
4. Set money aside. Roughly a quarter to a third of profit covers income tax and Class 4 National Insurance for most basic-rate taxpayers.
5. Remember Class 4 NI at 6% on profits between £12,570 and £50,270. If the side hustle sits on top of a salary that already uses your personal allowance, the whole profit is taxable from the first pound.

The Self-Employed Tax Calculator will show the combined effect alongside your employment income.

Why a side hustle on top of a salary costs more than you expect

This surprises people every January. If you already earn a full-time salary, your personal allowance is used up by your job, so every pound of side hustle profit above the trading allowance is taxable at your marginal rate — plus Class 4 National Insurance on top.

A basic-rate taxpayer keeps around 74p of each additional pound after income tax and Class 4 NI. A higher-rate taxpayer keeps around 58p. Someone whose combined income crosses £100,000 loses considerably more, because of the personal allowance taper.

None of this is a reason not to do it. It is a reason to price the work accordingly, and to keep back more than feels necessary.

Renting out space: a different set of rules

Income from letting property is not trading income and does not use the trading allowance. It has its own £1,000 property allowance, which works the same way — measured on gross rents, and claimed instead of expenses rather than alongside them.

There is also the Rent a Room scheme, which is considerably more generous but narrower. It applies where you let furnished accommodation in your own home, and it exempts a much larger amount of gross rent than the property allowance does. It covers lodgers and short-term letting of a room while you are still living there, but not letting a whole property, and not a self-contained flat.

Airbnb hosts frequently fall between the two. Letting a spare room while you remain in the property normally falls within Rent a Room. Letting the entire home while you are away is property income, where the £1,000 property allowance or actual expenses apply instead. The distinction turns on whether the accommodation is part of your own residence at the time.

You can use the trading allowance and the property allowance in the same tax year if you have both kinds of income — they are separate and do not interact.

What counts as an allowable expense

If your costs exceed £1,000 and you claim actual expenses instead of the allowance, it is worth knowing what genuinely counts, because people routinely under-claim.

For an online reseller that typically includes the cost of stock, platform and payment processing fees, postage and packaging materials, mileage to source stock or reach a post office, a proportion of phone and internet costs, and the cost of equipment such as a camera or printer used for the business.

Working from home costs can also be apportioned — either through the flat rates of £10 to £26 a month depending on hours, or by apportioning actual household bills. Our guide to working from home tax relief covers both methods and when each wins.

What does not count is anything with a private purpose, or the cost of items you keep. Buying a dress, wearing it, and then selling it does not make the dress a business expense.

Common situations

If you should have declared and did not

If you have been trading above the allowance without declaring it, the position is better than people fear — provided you act first.

HMRC operates a Digital Disclosure Service for exactly this. A voluntary, unprompted disclosure attracts substantially lower penalties than being contacted first, and where the omission was genuinely careless rather than deliberate, penalties can be reduced significantly or in some cases to nil.

Given that the platform data is now flowing automatically, the odds of an undeclared trading business remaining unnoticed have shortened considerably. Coming forward voluntarily is both cheaper and simpler than waiting.

A note on how to use this

This guide explains the rules as they stand for the 2026/27 tax year and is written to help you understand your own position. It is general information, not personal financial advice — your circumstances change the answer, sometimes completely. For a decision that matters, speak to a regulated adviser or check directly with HMRC. Our calculation methodology sets out where every figure on this site comes from.

Where these figures come from

Every rate and threshold on this page is checked against HMRC's published guidance for the 2026/27 tax year. If you spot a figure that looks out of date, please tell us.

• GOV.UK guidance for this topic