Budget 2026: tax free trading allowance increases to £3k

Sara White, Editor, Business & Accountancy Daily. Croner.

Trebling of trading allowance to £3,000 will give taxpayers with small side hustles tax break from April.

In the breathing space Budget, the new chancellor John Healey announced a threefold increase in the trading allowance from the current £1,000 to £3,000 with effect from 6 April 2027.

The allowance provides relief for trading and miscellaneous income, and simplifies the system for taxpayers who choose to use the relief, covering all their relevant income before expenses, and removing the requirement to declare or pay tax on this income.

The trading income reporting threshold for self assessment tax returns will also be increased to £3,000 but importantly not until the 2026-27 self assessment season. It is important to note that 2025-26 tax returns, due on 31 January 2027, will not be affected as the current £1,000 trading allowance remains in place for the next six months.

Richard McIntosh, CEO of Taxez chartered accountants, said: ‘Tripling the trading allowance to £3,000 is a welcome simplification. Someone with side hustle income of up to £3,000 a year before expenses, around £250 a month, from things like tutoring, odd jobs or selling things they’ve made, won’t need to declare it on a tax return. That takes a lot of worry and paperwork away from very small side hustles.’

But the trading allowance is not always the best approach for small traders with expenses. ‘Because the allowance is set against income, not profit, people with real costs should still check whether claiming their actual expenses works out better,’ McIntosh warned.

In a Budget without any real flagship measures to drive business growth more widely, Miles Dean, managing director at Andersen (UK), said: ‘The proposed increase in the tax-free trading allowance from £1,000 to £3,000 may encourage small-scale entrepreneurship, but it is unlikely to influence the decisions of those looking to establish, finance or grow substantial businesses.’

On the plus side, for its target audience of micro businesses just setting up, and small side hustlers, the increase in the trading allowance could cut their tax bill by up to £400 a year.

Roan Lavery, CEO and co-founder of FreeAgent, said: ‘The chancellor’s commitment to raising the trading allowance, reducing business rates for the high street, cutting some red tape and providing incentives for new businesses and entrepreneurs is genuinely welcome news. However, despite these small wins, there is nothing in the Budget that will really ‘wow’ small businesses.

‘Much of the speech was a ‘keep calm and carry on’ message rather than a genuine attempt to provide beneficial reforms or groundbreaking new ideas to support SMEs.’

The uprated trading allowance will be included in Finance Bill 2026-27.

Essential reading: Budget 2026 at a glance