For years, small creators, hobby earners, and side hustlers in the UK have quietly benefited from a generous yet often overlooked tax break — the £1,000 Trading Allowance. Whether someone was selling handmade jewellery on Etsy, digital artwork, cakes, crochet items, or offering freelance services, they could earn up to £1,000 a year from self-employment without needing to register or pay tax.
But now, this financial comfort blanket has an expiry date.
From 6 April 2026, the UK government plans to withdraw the Trading Allowance entirely — meaning thousands of side hustlers, gig workers, and micro-business owners will be pulled into the tax net for the first time.
So what does this mean? And more importantly — how can individuals legally protect their income before the change arrives?
What Is the Trading Allowance? (And Why It Matters)
The Trading Allowance is a tax exemption introduced in 2017 that lets individuals earn up to £1,000 per tax year from casual or self-employed activities without:
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Registering for Self Assessment,
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Paying Income Tax or National Insurance,
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Keeping detailed business records.
It was created to support side-income earners and promote entrepreneurial spirit. But with digital marketplaces booming — Etsy, Depop, Vinted, Fiverr, Upwork — HMRC claims too much undeclared income is slipping through.
What Happens After 6 April 2026?
From the 2026/27 tax year onward:
| Current (Until April 2026) | After April 2026 |
|---|---|
| Earn up to £1,000 tax-free from trading or side income. | No £1,000 trading allowance. All income is taxable. |
| No need to register for Self Assessment under £1,000. | Must register as self-employed if income exceeds £0 profit. |
| Minimal record-keeping needed. | Must keep records of every sale, expense, and receipt. |
| Designed to support micro-entrepreneurs. | Designed to increase tax compliance and revenue. |
In simple words: even if you’re making £50 profit from Etsy, HMRC expects you to declare it.
Who Will Be Affected?
This change doesn’t just affect online sellers. It impacts anyone earning small, irregular, or hobby-based income, including:
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Etsy, Shopify, Depop and eBay sellers
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Freelance designers, writers, virtual assistants
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Bakers, craft-makers, home-based businesses
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Tutors, music teachers, photographers
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Social media influencers earning gift collaborations
Even students and stay-at-home parents running small side hustles will now fall under HMRC’s radar.
Why Is HMRC Doing This?
HMRC has cited three primary reasons:
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Closing the Tax Gap — With millions in undeclared income via digital platforms, HMRC wants tighter compliance.
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Fairness — Small traders benefiting from £1k tax-free income while registered businesses pay full tax.
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Digital Economy Growth — More people are earning informally, and HMRC wants every pound traceable.
Additionally, platforms like Etsy and Airbnb are already legally required to report seller earnings to HMRC from January 2025, making undeclared income almost impossible to hide.
What Will You Need to Do?
From 2026, if someone earns even a small amount from self-employment:
✔ Register for Self Assessment (by 5 October following the end of the tax year)
✔ Keep detailed income and expense records
✔ Submit annual tax returns
✔ Pay Income Tax and Class 2 & Class 4 National Insurance (if applicable)
But… Could You Still Pay £0 Tax?
Yes — even after the allowance ends.
If your profits are below your Personal Allowance (£12,570), you won’t pay any tax.
However — you will still need to declare your earnings.
How to Legally Reduce Tax on Your Side Hustle
Smart tax planning can make a huge difference. Here are completely legal ways to minimise your tax bill:
✅ 1. Deduct All Allowable Business Expenses
You can deduct expenses such as:
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Raw materials (yarn, beads, packaging, etc.)
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Etsy/PayPal transaction fees
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Software and online tools
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Postage and delivery costs
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A proportion of home electricity, Wi-Fi, rent (home office use)
✅ 2. Consider Setting Up as a Sole Trader or Limited Company
Depending on profits, registering properly could actually save tax.
A firm like My Tax Accountant can guide you on whether to stay self-employed or go limited for maximum tax efficiency.
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✅ 3. Use Pension Contributions
Putting some side-income into a private pension gives 20% tax relief automatically — with higher-rate taxpayers receiving even more.
✅ 4. Claim the £7,500 Rent-a-Room Scheme (If Renting Out a Room)
Earn money from renting your room tax-free — this allowance still exists.
✅ 5. Split Income with a Spouse (If They’re in a Lower Tax Band)
Family tax planning can reduce your overall liability.
What Happens If You Ignore It?
HMRC is increasing digital monitoring and can now track income from platforms directly. Risks of ignoring include:
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Penalties for late registration
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Fines for undeclared income
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Investigation or enquiry by HMRC
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Losing eligibility for future tax relief schemes
Final Thought: Side Hustle or Small Business?
The removal of the Trading Allowance marks a turning point. Side hustles are no longer just “pocket money” projects — HMRC now sees them as taxable businesses.
Instead of worrying, this is the moment to get organised, treat your craft like a business and stay compliant.
If guidance is needed with tax planning, tax registration, or filing Self Assessment, services like My Tax Accountantcan help individuals stay on the right side of the law — and still protect as much profit as legally possible.