Recent media headlines have claimed that UK taxpayers can “increase their tax-free Personal Allowance to £13,570.” But, unfortunately, the reality is a bit more nuanced.
This article explains what that “increase” actually means, how it works in practice and how it fits alongside other tax-free allowances.
The Personal Allowance: What Has & Hasn’t Changed
Let’s start with the basics.
For the 2025–26 tax year, the UK Personal Allowance remains £12,570. This is the amount of income all UK residents and some non-UK residents can earn before paying any Income Tax, regardless of whether that income comes from employment, pensions, self-employment or rental profits.
Despite what some headlines suggest, the Personal Allowance has not increased. There is no new £13,570 tax-free threshold. Instead, HMRC offers separate allowances that can result in additional income being tax-free under specific conditions.
Where the Talk of Personal Allowance Increase is Coming From
The £1,000 figure sometimes mentioned in headlines comes from HMRC’s Trading Allowance (for side hustles) and Property Allowance (for small amounts of property income). These allowances sit outside the standard Personal Allowance and apply only to specific types of income.
To clarify how they differ, the table below sets out the key allowances side by side.
Allowance | Amount (for 2025-26) | What It Covers | Does It Increase Personal Allowance? |
|---|---|---|---|
Personal Allowance | £12,570 | Most taxable income (salary, pensions, self-employment, rental etc) | No |
Trading Allowance | £1,000 | Casual trading or side hustles | No |
Property Allowance | £1,000 | Small amounts of property income (casual rentals) | No |
Starting Rate for Savings | Up to £5,000 | Savings interest for low earners | No |
Rent a Room Scheme | £7,500 | Renting out a room in your main home | No |
Each allowance has its own rules and cannot always be combined with others.
Understanding the HMRC Trading Allowance
The Trading Allowance allows individuals to earn up to £1,000 per tax year from small-scale or casual trading activities without paying Income Tax on that income.
This is designed for people earning money outside their main job, such as those testing a business idea or earning occasional extra income.
Typical examples include freelance work, online selling as a business, dog walking, babysitting, market stalls or other paid services carried out on a small scale.
If your total trading income for the year is £1,000 or less, that income is usually completely tax-free.
Do You Need to Complete a Self Assessment Tax Return?
If your side-hustle income is £1,000 or less, you generally do not need to register for Self Assessment or file a Self Assessment Tax Return purely because of that income. However, HMRC still expects you to keep records of any income earned. This could include receipts, invoices or bank statements. Keeping accurate records ensures you can provide evidence if HMRC asks for it later.
If your income exceeds £1,000, the rules change. In this case, you must:
- Register for Self Assessment
- Declare the full income on your tax return
- Pay tax on the amount above the £1,000 allowance
Possible Future Change:
HMRC and the Treasury have announced plans to simplify reporting for side-hustle income between £1,000 and £3,000. Once this reform is introduced, it may be possible to notify HMRC and pay the appropriate tax without completing a full Self Assessment Tax Return.
However, this is only a possible future development and the above rules remain in place at present.
Note on Special Cases
Even if your side-hustle income is £1,000 or less, there are situations like those listed below where HMRC may still require you to submit a Self Assessment Tax Return.
- You have other untaxed income, such as investment income, rental income or overseas earnings
- You want to voluntarily pay National Insurance contributions
- You have income that triggers a Self Assessment return for other HMRC reporting reasons, like high savings, company director status or certain benefits
In these cases, the trading allowance still applies to your side-hustle income, but you must include it in the return and follow HMRC guidance. Keeping clear records of your earnings and any allowance claimed will make the process straightforward.
A Critical Rule Often Missed by the Media
When you earn money from side jobs or a small business, HMRC lets you reduce your taxable income in one of two ways:
- By using the £1,000 trading allowance, or
- By claiming your actual business expenses
You cannot use both methods for the same income. You must choose the one that gives you the bigger tax benefit.
Allowance | What It Does | When It's Better |
|---|---|---|
£1,000 Trading Allowance | Deducts a flat £1,000 from your gross trading income before tax | When your actual expenses are low or less than £1,000 |
Actual Business Expenses | Deducts the real costs you incurred to earn the income | When your real costs are more than £1,000 |
For example,
Think of a person earning £4,000 from selling handmade crafts.
- If they spent £300 on materials, claiming the £1,000 trading allowance gives a bigger reduction (£4,000 − £1,000 = £3,000 taxable)
- But if they spent £1,500 on materials, claiming actual expenses (£4,000 − £1,500 = £2,500 taxable) gives a better tax outcome
Choosing the wrong method (like using the trading allowance when your real expenses are much higher) can mean you pay more tax than necessary.
That’s why many people benefit from talking to experts like UK Property Accountants when they’re unsure about the best choice.
What About Property Income?
Just as there’s a £1,000 trading allowance for side hustles, HMRC also provides a £1,000 Property Income Allowance for individuals who earn small amounts of income from property. This allowance is designed to simplify tax for people with modest rental or land‑related income, so they don’t have to pay tax or complete extra paperwork if their earnings are very low.
Similarly, like the trading allowance, you must choose between:
- Claiming the allowance, or
- Deducting actual property expenses
For most landlords with professional rental businesses or substantial rental income, actual property expenses, including repairs, maintenance, agent fees, insurance, etc., are usually higher than £1,000, so using real expenses typically results in a lower tax bill.
Why Professional Advice Matters
Navigating HMRC allowances and reporting rules can be tricky, even for experienced landlords and side‑hustlers. At UK Property Accountants, we often see mistakes that lead to higher taxes, penalties and HMRC enquiries. The most common ones include:
- Assuming Other Allowances Increase the Personal Allowance – Some people mistakenly think the trading, property or savings allowances boost the standard £12,570 Personal Allowance. In reality, these allowances sit alongside it and only reduce tax on specific income types.
- Failing to Register for Self Assessment – Earning above the £1,000 threshold from a side hustle or property income triggers a registration obligation. Missing this can result in penalties and interest.
- Claiming Allowances Incorrectly – Choosing the wrong allowance or mixing them with expenses can increase your taxable income.
- Misapplying Rules – Some taxpayers incorrectly apply allowances to income types that don’t qualify, such as Rent a Room income versus property allowance or employment income. This can trigger HMRC compliance checks or adjustments.
With the right advice, it’s possible to reduce tax and stay fully compliant legally. Professional guidance ensures you claim the allowances you’re entitled to, avoid unnecessary errors and plan effectively for the year ahead.
Conclusion
The £1,000 trading allowance is a genuine HMRC relief that can help people earn more tax-free, but it is not a blanket increase to the Personal Allowance and is not suitable for everyone.
Understanding how it interacts with other allowances is key to staying compliant and tax-efficient.
If you earn side income, rental income or are unsure which allowances apply to you, professional guidance can ensure you benefit from the rules without risking costly mistakes.
Want more news from UKPA?
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