The UK Government has announced a significant increase in the tax-free trading allowance, raising it from £1,000 to £3,000 starting in the 2025/26 tax year. This change is part of a broader effort to simplify self-assessment requirements and reduce administrative burdens for small-scale earners, gig workers, and self-employed individuals.
The measure means that anyone earning £3,000 or less from self-employment or casual trade income in a tax year will no longer need to declare that income or register for Self Assessment, provided they have no other reason to do so. This policy shift, confirmed during the March 2024 Budget, could benefit millions of part-time entrepreneurs, hobby sellers, and side hustle earners across the UK.
By reducing the reporting threshold and tax obligations for micro-entrepreneurs, the government aims to support growing economic participation while easing pressure on both taxpayers and HMRC resources.
Understanding the Trading Allowance: What Is It and Who Qualifies?
The trading allowance was introduced in 2017 to reduce the tax complexity for individuals earning small amounts through self-employment, casual work, or hobby sales. Previously capped at £1,000, it allowed qualifying individuals to earn up to that amount without having to register with HMRC or file a tax return.
With the new limit of £3,000, the scope of the allowance has been significantly widened. This makes it particularly impactful for people engaged in:
- Part-time freelancing
- Selling items on platforms like Etsy, eBay, or Vinted
- Providing tutoring, dog walking, or other small services
- Earning ad revenue from YouTube or other creator platforms
The allowance applies per individual and per type of income. So someone earning £2,500 from freelance graphic design and £2,000 from selling vintage clothes online could potentially benefit under both allowances if they meet other conditions.
What’s Changing and Why Now?
This increase forms part of a wider government agenda to modernise the tax system and reduce friction for the self-employed. Chancellor Jeremy Hunt described the change as a “pro-growth move that empowers small business creators to thrive without being dragged into unnecessary paperwork.”
Officials believe this adjustment will help address two issues:
- Compliance complexity: Many individuals with low earnings from casual income were required to register for Self Assessment despite not owing tax.
- HMRC workload: Reducing the number of low-income earners in the tax system frees up HMRC’s capacity to focus on higher-risk and complex tax cases.
This comes at a time when more people are engaging in side hustles and informal trade, particularly following the pandemic and the rise of online platforms.
Implications for the Self-Employed and Gig Economy
The change offers immediate administrative relief for micro-traders and gig workers who previously struggled with tax reporting for minimal income. For example, a part-time dog walker or a student reselling items online may no longer need to worry about registering with HMRC if their earnings fall below the new threshold.
However, it's important to note that the £3,000 allowance is not a tax deduction, it is a full exemption for those earning below the threshold. Those earning more than £3,000 from self-employment will still need to report all income and expenses and register for Self Assessment.
For small businesses just over the threshold, the change doesn’t remove the need for bookkeeping, but it might incentivise more casual earners to dip a toe into the world of enterprise.
The Role of Digital Platforms and Online Sellers
The rise of digital marketplaces has played a key role in reshaping how people earn money. With platforms like Airbnb, Etsy, eBay, and TikTok monetisation, more people than ever are generating supplementary income.
This tax update could particularly affect:
- Social media influencers earning under £3,000 in gifted products and ad revenue
- Hobby sellers clearing out old stock or vintage items
- Individuals offering one-off services via apps and social channels
Previously, even modest earnings required registration and returns, something many found daunting or burdensome. Now, many of these low-level earners can operate more freely.
Still, digital platforms will continue to share earnings data with HMRC, and users must monitor their income carefully to ensure they remain within the limit.
HMRC’s Perspective and Future Considerations
Technology plays a pivotal role in helping gig workers navigate the complexities of tax laws. Accounting software and mobile apps serve as invaluable tools in streamlining record-keeping processes. They not only track income and expenses but also facilitate the filing of tax returns. By automating these tasks, technology reduces the risk of errors and ensures that gig workers meet their tax obligations efficiently and accurately.
Embracing such technological solutions empowers gig workers to focus more on their core activities while maintaining compliance with tax laws. As technology continues to evolve, it will further revolutionize how gig workers manage their finances, offering greater convenience and peace of mind.
Conclusion
From April 2025, the UK’s tax-free trading allowance will increase to £3,000, offering relief to millions of side hustlers and part-time earners. This change reduces the need for Self Assessment filings, simplifies compliance for small-scale income earners, and reflects the growing role of digital platforms in shaping how people earn.
While it’s a welcome change for many, those above the threshold must still report income accurately, and understand their tax obligations in a shifting self-employment landscape.
Frequently Asked Questions
What is the trading allowance?
The trading allowance is a tax exemption that allows individuals to earn up to a set amount from self-employment or casual income without paying tax or filing a Self Assessment return, provided they meet other criteria.
When does the new £3,000 trading allowance take effect?
The increased allowance applies from April 6, 2025, covering the 2025/26 tax year onwards.
Do I still need to file a tax return if I earn just over £3,000?
Yes. If your trading income exceeds £3,000, you must register for Self Assessment and report your income, even if you qualify for partial tax relief.
Can I still deduct expenses instead of using the allowance?
Yes. If your expenses are higher than £3,000, it may be more beneficial to deduct actual expenses rather than claim the trading allowance.
Does the trading allowance apply to rental or property income?
No. The trading allowance applies only to self-employment and casual income. A separate £1,000 allowance exists for property income.
