Mark McLaughlin highlights the potential tax implications for individuals undertaking activities to earn extra income.
Early in 2025, HM Revenue and Customs (HMRC) ran a ‘Help for Hustles’ campaign to support people who earn extra income to understand the extent of any tax obligations.
Nice little earners
HMRC has published a guide ‘Take the hassle out of your side hustle’ (taxhelpforhustles.campaign.gov.uk/), which covers five common sources of additional income:
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Buying or making things to sell;
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‘Side gigs’ (e.g., making deliveries);
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‘Working for myself doing multiple jobs’ (e.g., dog walking, online tutoring);
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Content creators or social media influencers; and
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Property rental (e.g., holiday rentals, letting out a second home).
In addition, HMRC has produced an online checker to help individuals ascertain whether HMRC needs to be informed about additional income (tinyurl.com/HMRC-additional-income).
Trading allowance
For the first four activities listed above, a trading allowance is generally available (ITTOIA 2005, ss 783A-783AR). The trading allowance exempts trading, casual and/or miscellaneous income of up to £1,000 per tax year from income tax. However, an election is available to claim tax relief for actual expenditure instead (e.g., where a tax relievable trading loss would result).
If the income exceeds £1,000, individuals can choose between electing to deduct £1,000 from their gross income, or to deduct actual expenditure incurred in arriving at their taxable profit or loss instead.
In the case of property rental, different rules normally apply (ITTOIA 2005, ss 783B-783BQ). These are not considered here, but very broadly, if an individual rents out a property (that they do not live in), a property allowance of £1,000 could apply. Furthermore, under the ‘rent-a-room’ scheme, individuals who rent out a room in their home can receive up to £7,500 per tax year without paying tax (ITTOIA 2005, ss 784-802).
The trading allowance, property allowance and rent-a-room scheme are all potentially available to an individual for the same tax year, if the relevant conditions are satisfied.
Reporting threshold
Shortly after HMRC’s Help for Hustles campaign was launched, the government announced plans to increase the income tax self-assessment reporting threshold for trading income from £1,000 to £3,000 gross within the current parliament.
However, it is important to note that the tax-free threshold is not being increased to £3,000 – merely the reporting threshold.
In the meantime, a new reporting tool is being developed to enable individuals to inform HMRC of income for trading between £1,000 and £3,000, instead of having to file a tax return to notify HMRC. If a tax liability arises within those levels, payment will be possible through a simple online service. The aim is to reduce the amount of paperwork, whereas the tax position will otherwise remain unchanged.
Practical tip
HMRC’s press release ‘Love your side hustle? Make it tax official this Valentine’s’ confirms that if someone has earned more than £1,000 from their side hustle in a tax year, they may need to complete a tax return. However, it adds: ‘This only applies to people who are trading or selling services. If someone is simply clearing out their unwanted items and putting them up for sale, they will not need to pay tax.’ Whilst this may be the case for income tax purposes, a capital gains tax liability might arise if someone is selling an item (a ‘chattel’, such as an antique vase) or collection (e.g., chess pieces) for over £6,000 (TCGA 1992, s 262). Professional advice should be sought if in any doubt.
