Side Hustle Tax Calculator

The £1,000 trading allowance

You can earn up to £1,000 a year of gross trading income tax-free. It covers self-employment, casual services such as babysitting or gardening, and hiring out personal equipment. If your gross trading income is £1,000 or less you may not need to tell HMRC, unless you cannot use the allowance or need to register for Self Assessment for another reason.

Over £1,000: two ways to work out profit

Once gross trading income is over £1,000 you register for Self Assessment, by 5 October after the end of the tax year. You then choose how to work out profit. You can deduct your actual allowable expenses, or you can deduct a £1,000 allowance instead, but not more than your income, and you cannot claim both. The calculator picks the relief that gives the lower profit: the allowance when your expenses are under £1,000, and actual expenses when they are higher.

How the tax is worked out

Income Tax is calculated as the extra tax caused by adding the profit on top of your other income, using the rates and the Personal Allowance for the year. Profit that falls in the 40% band is taxed at 40%, and a profit that lands between £100,000 and £125,140 also withdraws £1 of Personal Allowance for every £2, so the effective rate in that band is 60%.

Class 4 National Insurance is charged on the profit itself at 6% between £12,570 and £50,270 and 2% above that (gov.uk). Class 2 is no longer compulsory for most small traders; you can pay it voluntarily to protect State Pension and benefit entitlement.

Who cannot use the trading allowance

You cannot use it for trading income from a partnership, from a company that you or a connected person owns or controls, or from your employer or your spouse's or civil partner's employer. If you use the allowance on a return you cannot also deduct other expenses.

A worked example

Someone with a £30,000 salary earns £5,000 from selling crafts online and spends £500 on materials. Deducting the £1,000 allowance gives a profit of £4,000, which is better than the £4,500 profit from deducting actual expenses. The profit sits in the basic-rate band, so Income Tax is £800 and there is no Class 4 NI because the profit is below £12,570. After the £500 of real costs and £800 of tax, £3,700 is left.

Other things to watch

If your Self Assessment bill is over £1,000 you may also owe payments on account towards the next year. Registering for VAT is a separate test based on taxable turnover. If your combined self-employment and property income is high enough you could also be caught by Making Tax Digital for Income Tax: see the MTD checker.

Common mistakes to avoid

The most common mistake is mixing the two reliefs: you cannot deduct the £1,000 allowance and also claim expenses. Another is testing the £1,000 limit against profit, when the allowance is tested against gross income, so £1,200 of sales with £800 of costs is over the limit. A third is not keeping records: even income within the allowance needs records, and if you want to prove self-employment (for example to claim Tax-Free Childcare) or pay voluntary Class 2 National Insurance you must register for Self Assessment.

What this calculator does not cover

It uses England, Wales and Northern Ireland Income Tax rates, so Scottish taxpayers will see a different result. It ignores student loan repayments, Class 2 contributions, losses and the property allowance, and it treats your other income as a single non-savings figure. It is an estimate, not advice.