How Much Tax Do You Pay on £1,000 Side Income in the UK?
Good news: the first £1,000 of side income is usually tax-free under the Trading Allowance. Above that, you pay income tax at your marginal rate plus Class 4 NI. Here's exactly how it works in 2025/26.
The £1,000 Trading Allowance: Your First Layer of Protection
HMRC's Trading Allowance means the first £1,000 of trading or miscellaneous income each tax year is completely tax-free. It covers:
- Selling items online (eBay, Vinted, Facebook Marketplace — casual selling, not trading)
- Freelance work, tutoring, consulting done in your own time
- Dog walking, gardening, cleaning, handyman services
- Making and selling craft items
It does not cover:
- Rental income (which has a separate £1,000 Property Allowance)
- Employment income (even from a second job)
- Income from a partnership
If your total gross trading income is £1,000 or less in 2025/26: nothing to report, no tax to pay, no registration required.
What Happens Above £1,000: The Two Options
Once your gross side income exceeds £1,000, you have a choice:
| Option | How it works | When to choose |
|---|---|---|
| Claim Trading Allowance | Deduct £1,000 from gross income → taxable profit = gross − £1,000 | When actual expenses are less than £1,000 |
| Deduct actual expenses | Deduct real costs (materials, tools, mileage) → taxable profit = gross − actual expenses | When actual expenses exceed £1,000 |
You cannot use both — it's one or the other for the full year.
Example: £1,500 gross side income, no meaningful expenses
| Trading Allowance | Actual expenses (£50) | |
|---|---|---|
| Gross income | £1,500 | £1,500 |
| Deduction | −£1,000 | −£50 |
| Taxable profit | £500 | £1,450 |
| Verdict | ✅ Better | ❌ Worse |
Claim the Trading Allowance.
Tax Rates on Side Income in 2025/26
Your side income is added on top of your employment income (or pension, or other earnings) and taxed at your marginal rate — the rate that applies to the next pound of income.
| Your total income | Marginal rate on side income |
|---|---|
| Under £12,570 (under Personal Allowance) | 0% |
| £12,570 – £50,270 | 20% (basic rate) |
| £50,270 – £100,000 | 40% (higher rate) |
| £100,000 – £125,140 | 60% effective (PA taper) |
| Over £125,140 | 45% (additional rate) |
Key point: your side income sits on top of your other income. If your salary is £45,000 and you make £3,000 profit from freelancing, the first £5,270 of your side income is taxed at 20% (uses up to the £50,270 threshold) and any remainder above at 40%.
National Insurance on Self-Employed Side Income
Self-employed NI is separate from employment NI. You pay:
| Class | When it applies | 2025/26 rate |
|---|---|---|
| Class 4 | Self-employed profits above £12,570 | 9% (£12,570–£50,270) + 2% above |
| Class 2 | If profits above Small Profits Threshold £6,845 | £3.45/week (flat rate) |
Note: Class 2 NI is being reformed — the government has consulted on abolition, but it remains in place for 2025/26.
For most people with modest side income, Class 4 is the significant charge. Class 2 is only £179.40/year even if paid in full.
Example: Side income on top of full-time employment
Sarah earns £35,000 from her job. She also earns £3,000 gross from freelance graphic design with £200 of actual expenses (software subscriptions).
| Item | Calculation | Amount |
|---|---|---|
| Gross freelance income | £3,000 | |
| Less: Trading Allowance | (£1,000 > £200 actual expenses) | −£1,000 |
| Taxable profit | £2,000 | |
| Income tax (20% basic rate) | £2,000 × 20% | £400 |
| Class 4 NI | Profits £2,000 + salary £35,000 = £37,000 total — below £50,270 | £2,000 × 9% = £180 |
| Class 2 NI | Profits below £6,845 threshold | £0 |
| Total extra tax + NI | £580 |
Sarah keeps £1,420 of her £2,000 taxable profit — a 29% effective deduction on the profit above the Trading Allowance.
Worked Examples at Different Side Income Levels
| Gross side income | Trading Allowance deduction | Taxable profit | IT (20%) | Class 4 NI (9%) | Total tax/NI | Net income |
|---|---|---|---|---|---|---|
| £500 | Full allowance covers it | £0 | £0 | £0 | £0 | £500 |
| £1,000 | Exactly covered | £0 | £0 | £0 | £0 | £1,000 |
| £1,500 | −£1,000 | £500 | £100 | £45 | £145 | £1,355 |
| £2,000 | −£1,000 | £1,000 | £200 | £90 | £290 | £1,710 |
| £3,000 | −£1,000 | £2,000 | £400 | £180 | £580 | £2,420 |
| £5,000 | −£1,000 | £4,000 | £800 | £360 | £1,160 | £3,840 |
| £10,000 | −£1,000 | £9,000 | £1,800 | £810 | £2,610 | £7,390 |
Assumes basic rate taxpayer; Class 4 NI calculated on profit; Class 2 NI not shown (likely not applicable at these levels if below £6,845 profit) or is a flat £179/year addition.
What Does £1,000 Side Income Actually Cost You?
Many people think earning exactly £1,000 is "free" — it is, under the Trading Allowance. But the moment you earn £1,001 gross, you owe tax on the £1 profit above £1,000 (i.e., 20p tax + 9p NI = 29p on that £1 profit). There's no cliff edge — the Trading Allowance just removes the first £1,000 from your taxable profit.
Registering with HMRC
If your gross side income exceeds £1,000 in a tax year, you must:
- Register for Self Assessment via HMRC online (Government Gateway)
- Do this by 5 October following the tax year (e.g., 5 October 2026 for 2025/26 income)
- File a Self Assessment return by 31 January following the tax year (e.g., 31 January 2027 for 2025/26)
- Pay any tax owed by the same 31 January deadline
Failure to register on time can result in a £100 penalty even if no tax is owed.
Is HMRC Tracking Side Income?
Yes. HMRC has data-sharing agreements with platforms including:
- eBay, Vinted, Etsy: Sellers with 30+ transactions or £1,735+ in sales in a year must have their data reported to HMRC under the Digital Platforms Reporting rules (effective from January 2024 reporting, first reports filed in January 2025)
- Airbnb: Income reported directly to HMRC
- Fiverr, Upwork: Subject to reporting under forthcoming Making Tax Digital frameworks
The £1,000 Trading Allowance isn't HMRC ignoring side income — they see it. The allowance simply means you don't owe tax on it if gross income stays below £1,000.
Income Tax Calculator
Work out how much income tax you owe using the latest 2025/26 UK tax bands.
Open Income Tax calculatorFrequently asked questions
Related reading
Side Hustle Income and Pension Tax Relief: How to Avoid the Higher Rate Band (2026/27)
A £45,000 salary plus an £8,000 side hustle profit can tip you into the 40% tax band. Paying part of that extra income into a SIPP claims pension tax relief and can keep you a basic-rate taxpayer. Here's the worked numbers for 2026/27.
Side Hustle Tax in the UK 2026/27: When You Need to Tell HMRC
Selling on Vinted, doing weekend freelance work, driving for a delivery app — side income is taxable above certain thresholds, and HMRC now gets data directly from platforms. Here's exactly when you need to register and what you owe.
UK Self Assessment From Scratch — Part 8: After You File
What happens after you submit your Self Assessment return — refunds, balancing payments, amendments, HMRC enquiries, the SA302 for mortgages, and the 5-year record-keeping rule