With the rise of Vinted, Etsy, and freelance gigs, millions of people in the UK have started “side hustles.” However, new digital reporting rules from HMRC have created panic: Do I have to pay tax on the clothes I sell? Do I need to file a tax return for my hobby?
For many, the answer lies in the £1,000 Trading Allowance. Here is the expert breakdown of the rules to help you stay compliant without overpaying.
The Quick Answer
If your gross trading income (total sales before expenses) is £1,000 or less in a single tax year (6 April to 5 April), you generally do not need to tell HMRC or file a tax return. This is covered by the Trading Allowance. If your gross income exceeds £1,000, you must register for Self Assessment and declare your income.
What is the £1,000 Trading Allowance?
Introduced to simplify taxes for the gig economy, the Trading Allowance is a tax exemption that allows individuals to earn up to £1,000 of trading income tax-free each year.
This applies to:
- Casual services: Babysitting, gardening, or tutoring.
- Selling goods: Buying items to resell on eBay, Depop, or Vinted.
- Gig economy work: Uber, Deliveroo, or freelance design.
Crucial Note: The allowance applies to Gross Income (your total turnover), not your profit.
The 3 Scenarios: Do You Need to File?
Scenario A: Income is under £1,000
If you sold £800 worth of vintage clothes or did £600 of freelance writing, your income is fully covered by the allowance.
- Action: No action needed. You do not need to register with HMRC or file a return.
Scenario B: Income is over £1,000 (Low Expenses)
You earned £1,500 from a side hustle, but your expenses (postage, materials) were only £100.
- Action: You must file a tax return.
- Tax Tip: You can claim the flat £1,000 Trading Allowance instead of your actual expenses. This lowers your taxable profit to £500 (£1,500 income – £1,000 allowance), saving you tax and paperwork.
Scenario C: Income is over £1,000 (High Expenses)
You earned £5,000 selling crafts, but spent £3,000 on materials and shipping.
- Action: You must file a tax return.
- Tax Tip: Do not use the Trading Allowance. Instead, deduct your actual expenses (£3,000). Your taxable profit will be £2,000 (which is lower than the £4,000 profit you’d show if you just used the £1,000 allowance).
Selling Old Clothes: A Common Myth
There is a major difference between trading and clearing out the attic.
- Trading: Buying items with the intention of selling them for a profit. (Taxable subject to allowance).
- Personal Sales: Selling your own used clothes or old iPhone for less than you paid for them. (Generally not taxable, regardless of the £1,000 limit).
Why Expert Advice Matters
While the allowance simplifies things, mistakes can be costly. Claiming the trading allowance prevents you from claiming actual expenses or capital allowances for equipment (such as a new laptop). Making the wrong choice could result in a higher tax bill.
Furthermore, if you are already filing a return for other reasons (like being a landlord or earning over £100k), you must report this income differently.
Don’t let tax anxiety ruin your side hustle success. Whether you are unsure if you are “trading” or need help deciding between actual expenses and the trading allowance, Protax Consultants is here to help.
Our team specialises in:
- Self-Assessment registration and filing.
- Optimising your tax position (ensuring you claim the right reliefs).
- HMRC compliance checks for digital sellers.
Ensure you are compliant and tax-efficient today.
👉 Contact Protax Consultants for a free initial consultation.
