A recent study has revealed that approximately 3 in 10 (or 28%) of people in London have some kind of side hustle which earns them secondary income.
This places the capital just behind Bristol and Birmingham as one of the most popular cities for side hustles in the UK. That’s amazing!
What’s also amazing is the news that the Trading Allowance is set to increase, which means it’ll be easier for these savvy Londoners to report this type of secondary income. But when is it increasing? And if you’re someone with a side business, how exactly will you be affected?
Fret not, as we’ve got the answers.
What is a side hustle?
Generally speaking, your hobby business can be considered a business or side hustle if you sell products or services, but it’s not your main source of income because you do it alongside other work.
What is the Trading Allowance?
The Trading Allowance was introduced by HMRC as a tax-free allowance to cover “self-starters” with small, hobby-based businesses.
It’s essentially a straightforward relief designed to reduce the amount of paperwork for both taxpayers and HMRC, allowing people to earn up to £1,000 from self-employment before they need to report and/or pay tax on it.
Note that even if you have multiple side hustles, you still only get one Trading Allowance of £1,000 in each tax year. You won’t get a separate allowance for each one!
Who can use the Trading Allowance?
Quite simply, those who earn up to £1,000 from self-employment or miscellaneous activities in a tax year.
If your earnings are over the threshold, you are considered self-employed and will need to register for Self Assessment as a sole trader.
Is the Trading Allowance increasing?
Yes. Well… kind of. The threshold for filing a Self Assessment tax return for trading income is set to rise from £1,000 to £3,000 “within the current parliament” (or by the end of 2029).
So the actual Trading Allowance isn’t changing. What’s changing is the threshold for when you have to start reporting your trading income using Self Assessment.
This actually creates an interesting distinction where the tax-free threshold and the reporting threshold are different amounts. Many people will find themselves in a kind of grey area between the two: not needing to file a Self Assessment, but still owing some tax on their trading income.
How does all this actually affect you, though?
Let’s break it down.
What this increase means for your side hustle business
In simple terms, if you earn under £1,000 from self-employment, then no tax will be owed and there will be no requirement to declare your income to HMRC.
If you earn between £1,000 and £3,000, on the other hand, tax may still apply on your profits, but you’ll be able to report your income using a simplified online service (as opposed to
completing a full tax return).
If you earn over £3,000, you will have to register for Self Assessment and complete a tax return, as well as paying any taxes due on your earnings.
Again, this new change affects how you report your trading income, but not how it’s actually taxed.
Find more help with accounting and finance for your London-based business in our information centre.
