8th November 2026
People earning a little extra money outside their main employment are set to receive a tax break under changes announced in the 2026 Budget. From 6 April 2027, the annual tax-free trading allowance will rise from £1,000 to £3,000, potentially making life simpler for millions of people involved in small-scale trading or occasional paid work.
The change could benefit pensioners supplementing their retirement income, people with second jobs, those selling handmade goods, and individuals using their spare time to provide services or earn additional money.
For some, it will mean paying less tax. For others, it could mean no longer having to complete a Self Assessment tax return simply because they have a modest amount of additional trading income.
What is changing?
The trading allowance was introduced to simplify the tax treatment of small amounts of additional income. At present, individuals can receive up to £1,000 a year in qualifying trading or miscellaneous income without normally having to declare it to HMRC.
From 6 April 2027, that limit will increase to £3,000
The Government is also increasing the trading income reporting threshold for Self Assessment to £3,000. This is intended to reduce the administrative burden on people whose additional earnings are relatively modest.
HMRC estimates that up to 1.4 million people could potentially benefit from the change. Around 400,000 are expected to see a reduction in their tax bills, averaging approximately £380, while around 100,000 could no longer need to report their trading income to HMRC.
The measure will be introduced through the Finance Bill 2026-27.
What counts as a side hustle?
There are many activities that could fall within the allowance.
Someone might make and sell furniture, knitwear, jewellery or other handmade products. Another person might offer gardening, decorating, dog walking, tutoring or occasional repair services.
Online selling has also created opportunities for people to earn money from home. Websites and marketplaces make it relatively easy to sell products, offer services or develop a small business without the expense of renting premises.
For pensioners, the allowance could be particularly useful. Someone who has retired but still enjoys gardening, repairing household items, making crafts or providing occasional services could earn a little extra without immediately becoming involved in a complicated tax reporting process.
It may also help people who are trying to supplement wages that have not kept pace with the cost of living.
Selling unwanted possessions is different
There is an important distinction between selling personal possessions and running a trading activity.
Someone clearing out a wardrobe, selling old furniture or disposing of unwanted household goods is not automatically carrying on a business. Selling personal possessions is generally different from buying goods specifically to resell them at a profit.
However, someone regularly buying products with the intention of selling them on is likely to be regarded as trading.
There can also be separate Capital Gains Tax considerations when valuable personal possessions are sold for a profit.
The distinction matters because the trading allowance is designed for trading and miscellaneous income, not simply every payment received through an online selling platform.
Does earning more than £3,000 mean paying tax on everything?
No. The allowance is not an all-or-nothing threshold.
For example, someone receiving £4,000 in qualifying trading income during a tax year could normally claim the £3,000 trading allowance, leaving £1,000 potentially taxable.
Alternatively, they could deduct allowable business expenses instead of using the trading allowance. They cannot normally claim both the trading allowance and expenses against the same income.
It is also important to remember that the allowance applies to qualifying trading income, not employment wages, pensions, rental income or investment income.
People with several small trading activities must consider their combined income rather than treating each activity as having a separate £3,000 allowance.
Online platforms and HMRC
The growth of online marketplaces has brought another issue into the picture.
HMRC has increased its ability to obtain information about people selling through digital platforms. Platforms may have to collect and report information about sellers and their transactions.
However, being reported to HMRC does not automatically mean someone owes tax. Selling unwanted personal possessions is not necessarily trading, and the reporting of information by a platform does not change the underlying tax rules.
The new allowance should help make the position clearer for people who genuinely earn modest amounts from small trading activities.
A separate change is approaching for the self-employed
While the increased trading allowance is good news for people with small amounts of additional income, another tax change is moving in the opposite direction for larger businesses.
Making Tax Digital for Income Tax is being introduced in stages. From April 2027, qualifying sole traders and landlords with income above £30,000 will be required to maintain digital records and submit quarterly updates using compatible software.
The threshold is based on qualifying gross income from self-employment and property, rather than profit after expenses.
This means that while the Government is reducing the reporting burden for some small-scale earners, it is introducing more frequent digital reporting for many people running larger self-employed activities.
The two changes illustrate how different the tax obligations can be depending on the scale of someone's additional income.
A little more freedom to earn
The increase in the trading allowance is not a major tax reform, but it is a useful practical change.
Many households are looking for ways to supplement their income. Some people want to make use of skills they already have, while others simply want to earn a little extra without committing themselves to a full-time business.
For pensioners in particular, the ability to earn modest amounts through occasional work can provide both additional income and a reason to remain active and involved in their communities.
The £3,000 allowance will not solve the wider problems of household finances, but reducing unnecessary tax administration is sensible.
It is also a reminder that small businesses do not always begin with premises, employees and substantial investment. Sometimes they start with a spare room, a useful skill, a few customers and a willingness to earn a little extra.
From April 2027, the tax system should make that first step somewhat easier.