The Autumn Budget has delivered some welcome news for people earning a little extra money outside their main job.
From April 2027, the tax-free trading allowance is set to increase from £1,000 to £3,000 a year. The change could make life simpler for people with small side businesses, occasional freelance work or income from selling goods and services.
But there’s a question worth asking before celebrating:
Does this mean you can now earn £3,000 from your business without declaring it to HMRC?
Not necessarily.
The announcement is useful, but the detail matters. Particularly if you’re already registered as a sole trader, have more than one source of trading income or run an established business.
Let’s look at what has actually changed, who could benefit and what you need to know.
What is the £3,000 trading allowance?
The trading allowance is a tax relief designed to make it easier for individuals to earn small amounts of income from trading or certain miscellaneous activities.
Before the Budget announcement, the allowance was £1,000 per tax year.
The government has announced that this will increase to £3,000 from 6 April 2027, covering the 2027/28 tax year onwards.
The change also increases the Self Assessment reporting threshold for trading income to £3,000.
In simple terms, this means eligible individuals will be able to receive up to £3,000 in qualifying trading income without paying Income Tax on that income, provided they meet the conditions for full relief.
The intention is to reduce the tax and administrative burden on people earning relatively small amounts from activities outside their main employment or business.
Examples might include:
- Freelance work alongside a full-time job.
- Selling handmade products.
- Providing occasional services such as gardening, tutoring or photography.
- Earning money from a small online business.
- Taking on occasional paid work outside your usual employment.
It’s a change that could make starting a small side hustle a little less complicated.
Important: The increase does not take effect immediately. The existing £1,000 allowance remains in place for the 2026/27 tax year.
Does this mean I can earn £3,000 without declaring it?
This is probably the biggest question surrounding the announcement.
The short answer is: potentially, but only if your circumstances meet the relevant conditions.
From April 2027, if your total gross trading income is £3,000 or less for the tax year, you may not need to report that income to HMRC or pay tax on it.
However, there are important exceptions.
For example, you may still need to complete a Self Assessment tax return because of other income, existing reporting obligations or another reason HMRC requires you to file.
You also cannot use the allowance in certain circumstances, including some income received from your employer or a connected company.
Even if you don’t need to report the income, you should still keep accurate records of what you’ve earned.
The allowance is intended to simplify tax reporting. It isn’t permission to ignore your tax responsibilities.
Can I just not declare the first £3,000 of my registered sole-trader business income?
This is where things get particularly important for existing business owners.
Let’s say you’ve been running a registered sole-trader business for several years. You invoice customers, record your income and submit a Self Assessment tax return each year.
Can you simply leave the first £3,000 of business income off your return from April 2027?
No. You should not assume that you can simply omit it.
The trading allowance is a relief that can be used when calculating taxable profits. It is not a blanket exemption that automatically removes the first £3,000 of every business’s turnover from its reporting requirements.
If you’re already registered for Self Assessment, you may be able to claim the trading allowance against your gross trading income on your return.
However, you need to understand how that works and whether it is the best option for your business.
For someone with an established sole-trader business, the allowance may be less beneficial than claiming actual allowable business expenses.
The key distinction is between not having to report small amounts of qualifying trading income and claiming a tax allowance against income that you already have to report.
They are not the same thing.
If you’re already filing a tax return, don’t simply stop declaring income because you’ve heard about the new £3,000 threshold. Check your position with HMRC or your accountant first.
Does the £3,000 allowance apply to every side hustle?
No.
The allowance applies to your qualifying trading income as a whole, not £3,000 for every separate activity.
For example, imagine you earn:
- £1,800 from freelance graphic design.
- £900 from selling handmade products.
- £600 from occasional photography work.
Your combined gross trading income is £3,300.
You cannot claim a separate £3,000 allowance against each activity.
The income needs to be considered together when working out whether you qualify for full relief or need to report your trading income.
This is particularly relevant if you have multiple income streams or use different platforms to earn money.
Can I claim the £3,000 allowance and my business expenses?
No. This is one of the most important limitations to understand.
The trading allowance is an alternative to deducting your actual allowable business expenses.
You cannot claim both against the same trading income.
For example, imagine your side business generates £8,000 in gross income.
You have two options:
Option 1: Use the trading allowance
- Gross income: £8,000
- Trading allowance: £3,000
- Taxable trading profit: £5,000
Option 2: Claim actual allowable expenses
- Gross income: £8,000
- Allowable business expenses: £4,000
- Taxable trading profit: £4,000
In this simplified example, claiming actual expenses would leave you with a lower taxable profit.
The figures will be different for every business, but the principle is straightforward: you should compare the allowance with your actual eligible expenses before deciding which approach is more beneficial.
If you have significant costs associated with running your business, the trading allowance may not be the best option.
Does the allowance mean I don’t need to register as self-employed?
Not automatically.
The increase to £3,000 also raises the Self Assessment reporting threshold for trading income, which means some people earning relatively small amounts may no longer need to register for Self Assessment solely because of that income.
However, there are other circumstances where you may still need to register or complete a tax return.
For example, you may have other taxable income, need to report a loss or have another reason to submit a return.
It’s also worth remembering that being self-employed and being registered for Self Assessment are not quite the same thing.
If you’re starting a business, you should check your registration responsibilities rather than relying on the allowance alone.
What about selling things on eBay, Vinted or Etsy?
The allowance may be relevant if you’re earning money by trading through online marketplaces.
For example, if you regularly make products to sell, buy goods with the intention of reselling them for a profit or provide services through an online platform, the income may count as trading income.
However, selling unwanted personal belongings is different.
If you’re simply clearing out your wardrobe or selling things you no longer need, that does not automatically mean you’re running a business.
The distinction is important.
HMRC looks at the nature of the activity, including whether you’re buying or making items with the intention of selling them for profit.
The fact that an online platform reports information to HMRC does not automatically mean you owe tax. Equally, receiving income through a platform does not mean it can be ignored.
The type of activity and the amount you earn both matter.
Does this affect limited companies?
The trading allowance is an Income Tax relief for individuals. It is not an allowance for limited companies.
If you operate through a limited company, the company’s income and profits are dealt with under Corporation Tax rules.
You cannot simply apply the £3,000 individual trading allowance to company turnover or profits.
This distinction matters if you’re considering whether to operate as a sole trader or through a limited company.
The right structure depends on your circumstances, not just the availability of a particular tax allowance.
When does the new £3,000 allowance start?
The increase is scheduled to take effect from 6 April 2027, at the start of the 2027/28 tax year.
Until then, the existing £1,000 trading allowance remains relevant.
That means the new threshold will not apply to income earned during the 2026/27 tax year, even though the announcement was made in the October 2026 Budget.
The government intends to introduce the change through Finance Bill 2026–27.
If you’re earning additional income now, continue to follow the current rules rather than applying the new allowance early.
What should small business owners do now?
For people considering a side hustle, the announcement is encouraging.
It could make it easier to earn a little extra income without immediately taking on the same reporting responsibilities as someone running a larger business.
But if you’re already self-employed, the change is a reason to review your position rather than assume your tax obligations have disappeared.
A few sensible steps:
- Keep records of your income. Know exactly how much you’re earning across all your trading activities.
- Understand your expenses. Compare the new allowance with the actual costs of running your business.
- Check your reporting obligations. Particularly if you’re already registered for Self Assessment.
- Don’t confuse turnover with profit. The allowance is calculated against gross trading income, not simply the money left after costs.
- Get advice before changing your approach. The most tax-efficient option will depend on your wider financial circumstances.
The bigger picture
The increase to the trading allowance is a positive step for people earning small amounts through side hustles, freelance work and other trading activities.
It recognises that not everyone earning extra money is running a full-scale business, and that the administrative burden of reporting relatively small amounts can sometimes feel disproportionate.
But the £3,000 figure shouldn’t be misunderstood.
It isn’t a new blanket exemption for established businesses. It doesn’t mean every sole trader can leave £3,000 off their tax return. And it doesn’t remove the need to keep proper records.
The real benefit is that eligible individuals will have a larger allowance and a higher reporting threshold, giving some people more flexibility and reducing unnecessary administration.
If you’re unsure how the new allowance applies to your income, business or side hustle, take advice before making changes to how you report it.
At Filament Business Studio, we believe good business decisions start with clarity. Understanding the rules is a sensible first step towards building something that works for you.