Side hustle tax grab as income thresholds frozen for nearly 10 years - how much extra are you paying?
The £1,000 trading allowance, which lets people earn a small amount from casual or secondary income without paying tax, has been frozen since it was introduced in 2017 - despite the cost of goods and wages rising sharply over the same period.
If the allowance had increased in line with inflation, it would now be about 30% higher, shielding more low-level earnings from tax and paperwork. Instead, more people are being dragged into the tax system for modest amounts of extra income.
Nearly one in five adults now earns money from a side hustle, according to research by Scottish Widows, underlining how many people could be affected by the stagnant threshold.
Half of women with side hustles told Scottish Widows they started one to increase their disposable income and one in 10 are hoping it becomes a full-time job.
What is the £1,000 trading allowance?
The trading allowance allows individuals to earn up to £1,000 a year from self-employed or ‘side hustle’ income without having to pay tax on it, or even declare it to HMRC.
It applies to things like:
- Selling items online for profit on websites like Vinted and eBay
- Freelance or gig work
- Tutoring or coaching
- Content creation
- Casual services alongside a main job such as dog walking
Once earnings go over £1,000 in a tax year, the income must be declared, and tax may be due.
When the allowance was introduced, it was pitched as a way to support flexible working and small-scale enterprise, reducing red tape for people earning modest sums on the side.
What should the allowance be today?
NimbleFins analysis shows that if the £1,000 trading allowance had risen in line with inflation since 2017, it would now be worth more than £1,300.
That reflects the increase in prices over the past eight years, which has also seen wages rise too.
In other words, people are now paying tax on income that would previously have been considered too small to worry about.
What the side hustle allowance should have been without the freeze
| Tax year | Inflation rate | Side hustle allowance if uprated |
|---|---|---|
| 2017/18 | – | £1,000 |
| 2018/19 | 2.4% | £1,024 |
| 2019/20 | 1.8% | £1,042 |
| 2020/21 | 0.9% | £1,052 |
| 2021/22 | 2.6% | £1,079 |
| 2022/23 | 9.1% | £1,177 |
| 2023/24 | 7.3% | £1,263 |
| 2024/25 | 2.5% | £1,295 |
| 2025/26 | 3.2% | £1,336 |
| 2026/27 | 2.1% | £1,364 |
How much extra tax are side hustlers paying?
Each year the trading allowance remains frozen, a slightly larger slice of side-hustle income is pulled into tax.
In the early years the impact is small, but as inflation compounds, the gap widens. By 2026/27, a basic-rate taxpayer is paying around £73 more tax every year, while a higher-rate taxpayer is paying around £146 more a year, purely because the allowance failed to rise with prices.
Extra tax paid each year due to the £1,000 side hustle allowance freeze
| Tax year | Allowance if uprated with inflation | Extra income taxed due to freeze | Extra tax (basic rate 20%) | Extra tax (higher rate 40%) |
|---|---|---|---|---|
| 2017/18 | £1,000 | £0 | £0 | £0 |
| 2018/19 | £1,024 | £24 | £5 | £10 |
| 2019/20 | £1,042 | £42 | £8 | £17 |
| 2020/21 | £1,052 | £52 | £10 | £21 |
| 2021/22 | £1,079 | £79 | £16 | £32 |
| 2022/23 | £1,177 | £177 | £35 | £71 |
| 2023/24 | £1,263 | £263 | £53 | £105 |
| 2024/25 | £1,295 | £295 | £59 | £118 |
| 2025/26 | £1,336 | £336 | £67 | £134 |
| 2026/27 | £1,364 | £364 | £73 | £146 |
How much more tax basic-rate side hustlers have paid due to the freeze
For basic-rate taxpayers, the impact of the frozen £1,000 trading allowance has built up gradually over time. In the early years, the difference was small. But as inflation pushed up prices - and side hustle earnings - more income has been dragged into tax than would have been the case if the allowance had kept pace.
By the end of the 2026/27 tax year, basic-rate side hustlers earning only modest amounts above the allowance will have paid hundreds of pounds more in tax overall, purely because the threshold failed to rise with inflation.
| Side hustle earnings per year | Total tax due with frozen £1,000 allowance (2017/18 to 2026/27) | Total tax due with inflation-linked allowance (2017/18 to 2026/27) | Extra tax due under allowance freeze |
|---|---|---|---|
| £1,100 | £200 | £61 | £139 |
| £1,200 | £400 | £177 | £223 |
| £1,300 | £600 | £294 | £306 |
| £1,364 | £728 | £364 | £364 |
How much more tax higher-rate side hustlers have paid due to the freeze
The effect is sharper for higher-rate taxpayers, who face a 40% tax rate on side hustle profits once they exceed the allowance. Because each pound of lost allowance is taxed more heavily, the freeze has translated into a much larger cumulative hit over the same period.
By 2026/27, higher-rate side hustlers earning only a few hundred pounds above the allowance will have paid hundreds of pounds more in tax overall, despite no change in tax rates — just a threshold that failed to keep up with inflation.
|
Side hustle earnings per year | Total tax due with frozen £1,000 allowance (2017/18 to 2026/27) | Total tax due with inflation-linked allowance (2017/18 to 2026/27) | Extra tax due under allowance freeze |
|---|---|---|---|
| £1,100 | £400 | £121 | £279 |
| £1,200 | £800 | £353 | £447 |
| £1,300 | £1,200 | £587 | £613 |
| £1,364 | £1,456 | £728 | £728 |
This is an example of what economists call fiscal drag — when thresholds stay fixed while wages and prices rise, pulling more people into paying tax or paying more than before.
NimbleFins has previously reported how millions of workers are paying significantly more income tax because thresholds have not risen in line with inflation.
And three million more people are now paying basic rate income tax compared to five years ago.
A worker on a £35,000 salary has missed out on nearly £3,000 because income tax thresholds haven’t risen with inflation. Those earning £50,000 a year have paid nearly £15,000 more. See our story here: How much income tax bands freeze has cost you as workers to pay 11% MORE this year
What do side hustle business owners need to do?
If you earn money from a side hustle, whether that’s freelancing, selling online, or something else, the key thing to know is that HMRC looks at your total earnings over the tax year, not whether the work feels ‘casual’ or irregular.
If your side hustle income stays at £1,000 or less in a tax year, you generally don’t need to tell HMRC about it at all, thanks to the trading allowance. But once you go over that limit, the income usually needs to be declared, even if the tax bill itself is small.
At that point, most people will need to complete a self assessment tax return, which is how HMRC works out whether tax is due on that income.
A common mistake is assuming tax only applies to the money coming in. In reality, HMRC taxes profit, not turnover - which means legitimate business expenses can usually be deducted before tax is calculated.
For someone running a small side hustle, that might include things like equipment, software subscriptions, materials, or a portion of household costs if working from home. This is why keeping basic records is important. Even something as simple as a spreadsheet or folder of receipts will do. Without them, people can end up paying tax on more than they need to.
Another thing that catches people out is how tax is collected. HMRC doesn’t always send a separate bill. In some cases, tax on side hustle income is recovered by adjusting your tax code, which can quietly reduce your take-home pay from a main job or pension without much warning.
As allowances remain frozen and more people turn to side hustles to top up their income, staying on top of earnings, expenses and thresholds has become increasingly important to avoid an unexpected bill.
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