Whether you are selling on eBay, creating designs on Etsy, or picking up freelance projects, side hustle income can grow quickly. HMRC may expect a share of your earnings, but the rules are not always straightforward. This guide explains the £1,000 trading allowance, when you must report your earnings, and how to stay compliant without overcomplicating things.

The £1,000 Trading Allowance

The UK offers a £1,000 trading allowance for casual or self-employed income. This means you can earn up to £1,000 in gross income from your side hustle during the tax year without paying tax or completing a Self Assessment tax return.

The allowance covers income from activities such as:

• Selling items online through eBay, Vinted, or Facebook Marketplace
• Freelance services like writing, graphic design, or website development
• Making and selling crafts or handmade goods
• Tutoring or personal coaching
• Any other form of occasional or small-scale trading

It is important to note that the £1,000 limit is based on gross income before expenses, not your profit. If your total self-employed income for the tax year is £1,000 or less, you do not need to tell HMRC unless you choose to claim expenses instead of the allowance.

Worked Example: Using the Trading Allowance

If you earn £850 selling handmade jewellery on Etsy, you are below the threshold and do not need to file a Self Assessment return. If you earn £1,200, you must either pay tax on the £200 above the allowance or claim expenses if they are higher and reduce your taxable profit further.

When You Must Report Side Income

You need to register for Self Assessment and potentially pay tax if:

• Your total gross income from self-employment is more than £1,000 in a tax year
• You want to claim allowable business expenses instead of the trading allowance
• You already file a Self Assessment return for other reasons (for example, rental income) and want to include your side hustle earnings

For a full breakdown of the registration process, see our guide: Do I Need to File a Self Assessment Tax Return?

Is Selling on eBay or Vinted Taxable?

The answer depends on whether you are classed as trading or just selling personal items:

• Occasional sales of personal possessions, such as clearing out clothes or unwanted gadgets, are usually not taxable
• Regular selling for profit, including buying stock to resell or making items to sell, may count as running a business and could be taxable

HMRC looks at factors like how often you sell, whether you buy items specifically to resell, and whether you promote your goods or services in a business-like way.

What If You Are Paid Through PayPal or Bank Transfer?

HMRC does not distinguish between payment methods. If your earnings exceed the £1,000 allowance, you may need to report them regardless of whether you were paid in cash, by bank transfer, or via a platform like PayPal.

From 2025 onwards, digital platforms including eBay, Etsy, and Vinted must report seller earnings directly to HMRC, making it easier for them to identify unreported side hustle income.

National Insurance Contributions (NICs)

If your side hustle profits exceed the Small Profits Threshold (£6,725 for 2025/26), you may also need to pay Class 2 and Class 4 National Insurance contributions. These are in addition to Income Tax and are based on your taxable profit rather than total income.

Common Misunderstandings

• Thinking the £1,000 allowance is per platform — it applies to your total self-employed income
• Believing you only need to report income if you make a profit — the threshold is based on gross income
• Assuming HMRC will not notice — digital platform reporting is closing this gap
• Forgetting to register by the deadline — missing this can lead to penalties

Tips for Staying Compliant

• Keep simple but accurate records of all sales and expenses
• Register for Self Assessment early to avoid last-minute stress
• Keep receipts, invoices, or screenshots as proof of expenses
• Set aside 20 to 30 percent of your profits for tax and NICs
• Consider basic accounting software to track your figures

Case Study: Sarah's Handmade Candle Business

Sarah sells handmade candles on Etsy in her spare time. In 2025/26, her total sales amount to £3,000 and her expenses for wax, jars, and packaging are £1,200. Her taxable profit is £1,800. Because her income is above the £1,000 trading allowance, she must register for Self Assessment and report the income. She chooses to deduct her actual expenses rather than use the allowance, reducing her taxable profit to £1,800 instead of £2,000.

Frequently Asked Questions

More Side Income Guides

• Side Hustle vs. Hobby: What Counts as a Business?
• Do You Need to Register as Self-Employed?
• How to Track Income and Expenses