A tax change announced for 2027 could make things simpler for people earning a little extra through freelance work, side activities or occasional services. This guide explains who may be affected, how the rules work and what to know before the change takes effect.
Change at a glance
Trading Allowance rises from £1,000 to £3,000
The amount of eligible trading and miscellaneous income covered by the allowance will triple.
When
6th April 2027
From the 2027/28 tax year.
New allowance
£3,000
Up from £1,000.
Where
UK-wide
A UK income tax measure.
Who it affects
Individuals with eligible small amounts of trading or miscellaneous income, such as income from providing goods or services.
What you need to do
No action is needed now solely because of the announcement. Keep records of your income and check the final HMRC rules before the new tax year.
Last checked: 30th October 2026.
What is the Trading Allowance and how will it increase?
The Trading Allowance is a tax allowance for individuals who earn money from certain kinds of work outside employment. It currently covers up to £1,000 of qualifying income in a tax year. From 6th April 2027, it is due to rise to £3,000.
It can cover income from activities such as self-employment, casual services and providing goods or services. The allowance is intended for individuals, not a separate tax-free allowance for every business activity they carry out. It can cover relevant trading and miscellaneous income together, subject to the detailed rules.
When does the Trading Allowance increase start?
The increase takes effect on 6th April 2027, which is the first day of the 2027/28 tax year. It does not apply retrospectively to income earned during the 2026/27 tax year.
The government says the change will be made through Finance Bill 2026–27. The Budget announcement and HMRC tax information and impact note set out the intended implementation date. The final legislation and updated HMRC guidance should be checked as they become available.
Who could benefit from the increase?
The change is aimed at individuals with modest amounts of trading or miscellaneous income. This may include people who do paid freelance work alongside a job, provide occasional services, sell goods as a business or earn money from a small side activity.
For example, someone who earns money from occasional gardening or babysitting services may have relevant miscellaneous income. A person running a small sole-trader activity may have trading income. Whether a particular activity counts, and how much of its receipts are covered, depends on the tax rules.
FREELANCE WORK
Small paid projects
For example, occasional design, writing or other independent services.
SIDE ACTIVITIES
Extra income alongside a job
Eligible income from a small activity outside your main employment.
CASUAL SERVICES
Occasional paid work
Some casual services, such as gardening or babysitting.
Does the increase apply to Vinted, eBay and online selling?
It depends on what you are selling and why. Selling your own unwanted personal possessions is not automatically the same as trading. Buying or making goods with the intention of selling them for a profit, or carrying out regular selling activity in a business-like way, may amount to trading.
The Trading Allowance is relevant to taxable trading income, not simply every payment received through an online marketplace. The separate rules for selling personal possessions, capital gains and digital platform reporting should not be confused with the Trading Allowance. A platform reporting information to HMRC does not, by itself, mean that tax is due.
For that reason, do not assume the £3,000 threshold means you can sell an unlimited number of personal items without checking the rules, or that every online sale counts as trading income. The nature of the activity matters.
Is the Trading Allowance the same as the Personal Allowance?
No. They are separate tax allowances and work in different ways.
The Personal Allowance is the amount of income most people can receive before paying Income Tax, subject to the rules and their circumstances. The Trading Allowance applies specifically to eligible trading and miscellaneous income. It is not an additional £3,000 added to your Personal Allowance.
What happens if you earn more than £3,000?
If your qualifying trading and miscellaneous income is more than £3,000, the allowance does not disappear. You may still be able to deduct the available £3,000 allowance when working out the amount subject to Income Tax. It is not a cap on how much you can earn.
From 6th April 2027, the separate Self Assessment reporting threshold for trading income is also due to rise to £3,000. The allowance and the reporting threshold are two different rules: one affects how much qualifying income is covered for tax, while the other affects whether you need to report trading income through Self Assessment.
The £3,000 threshold will not remove every reason to complete a tax return. You may still need to file because of other income or circumstances, or because HMRC requires you to. HMRC also identifies situations where you may need or choose to report income to claim trading loss relief, pay voluntary Class 2 National Insurance contributions, or meet conditions connected with Tax-Free Childcare or Maternity Allowance. Check the rules that apply to you rather than treating £3,000 as a universal exemption.
Keep records of money received and relevant costs, and do not ignore a notice or request from HMRC. If you are already registered for Self Assessment, check the updated HMRC guidance for the tax year concerned.
Trading Allowance or actual expenses?
You can usually choose between deducting the Trading Allowance from your qualifying income or claiming actual allowable business expenses against that income. You cannot normally do both for the same income, and the allowance cannot create a trading loss.
If your costs are low, the allowance may be simpler. If you have higher allowable costs, claiming those expenses may leave you with a lower taxable profit. The worked example in the next section shows how the two methods can produce different results.
Is the £3,000 allowance based on turnover or profit?
The allowance is based on the money you receive before taking off your business costs. This is sometimes called your gross income. It is not based on the profit left after costs.
For example, imagine your side business receives £4,500 during the tax year and you spend £3,500 on allowable business costs. Your profit before tax is £1,000. If you use the £3,000 Trading Allowance, the calculation is based on the £4,500 gross income, leaving £1,500 after the allowance. If you claim actual allowable expenses instead, the calculation would leave £1,000. In this example, claiming actual expenses may be more beneficial.
You normally choose between using the Trading Allowance and deducting actual expenses against the same income. Compare the figures before deciding, and remember that the allowance cannot create a trading loss.
Do you get £3,000 for each side hustle?
No. The allowance is not £3,000 for every separate business, freelance job or selling account. It is a single annual allowance for an individual’s qualifying trading and miscellaneous income, subject to the detailed rules.
For example, if you receive £1,800 from freelance work and £1,700 from providing occasional paid services, your combined relevant income is £3,500. You cannot automatically claim a £3,000 allowance against each activity separately.
Keep records of each income source separately. This makes it easier to identify what type of income you have received and apply the correct tax treatment.
What types of income can the Trading Allowance cover?
As well as income from self-employment and casual services, HMRC guidance gives examples such as hiring out personal equipment, including power tools. The rules can cover qualifying trading and miscellaneous income from providing goods or services.
There is a separate Property Allowance for qualifying property income. Do not confuse income from renting out property with trading income, and do not assume the £3,000 Trading Allowance can be used as an extra allowance for every type of income.
There are also restrictions. In particular, the standard allowance is not generally available for trading income from a partnership, from a trade carried on through a company you or a connected person controls, or from work for your employer or your spouse or civil partner’s employer. Connected-person and company arrangements can be complicated, so check HMRC’s detailed guidance if any of these situations apply.
WHAT ABOUT UNIVERSAL CREDIT?
The Trading Allowance is an Income Tax rule. HMRC says the trading and property income allowances do not change how income is treated for Universal Credit purposes. If you claim Universal Credit, do not assume that an amount covered by the tax allowance is automatically ignored when your Universal Credit is calculated. Check the separate benefit rules and report income as required.
Does the change apply across the UK?
The measure is an Income Tax change announced by the UK Government and is intended to take effect across the United Kingdom from the 2027/28 tax year. Income Tax rates and bands can differ between nations, but the Trading Allowance measure is not presented as a Scotland-only or England-only change.
What should you do before April 2027?
KEEP YOUR SIDE-INCOME RECORDS IN ORDER
- Keep a record of money received from any trading or miscellaneous activities.
- Keep receipts and records of costs in case you need to work out actual allowable expenses.
- Separate business activity from the sale of personal possessions where appropriate.
- Check HMRC guidance when the updated rules for 2027/28 are published.
RELATED GUIDE
HMRC mileage rates for 2026/27
If you are self-employed, you may also need to understand how business costs are treated. Our guide explains the current HMRC mileage rates and how eligible self-employed people can use simplified mileage expenses.
Official information and sources
Information checked on 30th October 2026. The increase has been announced and is intended to take effect from 6th April 2027. The detailed amendments are expected through Finance Bill 2026–27. Check HMRC guidance for the final rules before acting.
-
HMRC’s tax information and impact note confirming the new £3,000 allowance, reporting threshold and start date.
-
The government’s Budget 2026 document, which announces the increase.
-
The Budget tax legislation overview, including the planned change to the allowance and Self Assessment reporting threshold.
-
HMRC’s current guide to the trading and property income allowances, including how the existing £1,000 rules work.
-
The Department for Work and Pensions’ guidance on reporting self-employed income and expenses for Universal Credit.
This article provides general information based on official sources checked on 30th October 2026. It is not individual tax advice. Tax rules and guidance may change, so check HMRC’s latest information or speak to a qualified adviser about your own circumstances.