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.
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