Budget 2026: £3,000 Trading Allowance and Your Side Hustle
The trading allowance triples from April 2027. Here is what Budget 2026 changes for side hustles, when it still makes sense to form a limited company, and what founders should watch.
Budget 2026 will triple the trading allowance from £1,000 to £3,000 from 6 April 2027. If your side hustle earns no more than £3,000 a year in gross trading income, you will not have to pay tax on it or report it through Self Assessment. Above that level, the usual rules apply, and the question of whether to trade as a sole trader or a limited company stays the same.
The Chancellor delivered the Budget on 28 October 2026. This guide covers the measures most relevant to people starting or growing a small business. Information checked on 14 November 2026.
What changes with the trading allowance
The trading allowance lets individuals earn a small amount of trading income tax-free. The Budget confirms two linked changes, both from 6 April 2027 (Budget 2026 overview of tax legislation and rates, paragraph 1.5):
- The trading allowance rises from £1,000 to £3,000.
- The Self Assessment reporting threshold for trading income also rises to £3,000.
Until then, the £1,000 allowance still applies for the 2026 to 2027 tax year. The change is due to be legislated in Finance Bill 2026-27, so it is announced policy rather than law yet.
Two points are easy to miss. First, the allowance is measured on gross income, not profit. Second, if you use the allowance, you cannot also deduct your actual business expenses from that income. See HMRC guidance on the trading and property allowances.
Who benefits most
The change is aimed at genuinely small side income: occasional craft sales, a few weekends of freelance design, tutoring or pet-sitting. If that describes you, the £3,000 allowance may mean you can skip Self Assessment for that income entirely from April 2027.
It does not change much for someone whose side hustle is becoming a business. If you are invoicing clients every month, buying equipment or software, or earning well above £3,000, the allowance will either not apply or be worth less than claiming your real expenses.
Does this make forming a limited company less attractive?
For very small side income, yes: there is now less reason to formalise something that earns a few hundred pounds. For anything bigger, the reasons people form a limited company have little to do with the trading allowance:
- Limited liability: the company is a separate legal entity, which can protect personal assets if things go wrong.
- Credibility: many business clients and platforms prefer working with a company.
- Separation: a company bank account keeps business and personal money apart.
- Room to grow: a company can bring in co-founders, issue shares and hold its own contracts.
Corporation Tax is unchanged in the Budget. The main rate stays at 25% and the small profits rate at 19%, and the government has said it will keep those rates for the financial year starting 1 April 2028. See current Corporation Tax rates.
Founders' Relief and a lower BADR limit
Two capital gains measures matter for anyone who might one day sell their company:
- Founders' Relief: a new Capital Gains Tax relief will give a lower rate on qualifying share disposals made on or after 6 April 2027. The government is consulting on the design, and the consultation closes on 30 November 2026.
- Business Asset Disposal Relief: the lifetime limit falls from £1,000,000 to £500,000 for qualifying disposals on or after 6 April 2027.
These will not affect most new companies for years. But if you are starting a company with growth or a future sale in mind, they are worth discussing with an accountant early, because share structure decisions are much easier to make at incorporation than later.
Changes to how company profits are paid out
The Budget also confirms the government is going ahead with plans to modernise the framework for company distributions, with changes taking effect from April 2028. Detailed rules have not been published yet. If you plan to pay yourself mainly through dividends, keep an eye on this and take advice before April 2028.
What stayed the same
The headline rates of Income Tax, National Insurance contributions and VAT were not increased. Dividend tax rates for 2026 to 2027 remain as set from April 2026: 10.75% for basic rate taxpayers, 35.75% for higher rate and 39.35% for additional rate, with a £500 dividend allowance. See tax on dividends.
A simple way to decide
| Your side hustle | What to consider |
|---|---|
| Under £3,000 a year, few costs | From April 2027, the trading allowance may cover it with no reporting |
| Over £3,000, real costs | Register as a sole trader and claim expenses, or form a company if you want liability protection and a business identity |
| Regular clients, growing income | A limited company is often worth considering. Get advice on salary, dividends and timing |
FAQ
When does the £3,000 trading allowance start?
From 6 April 2027, the start of the 2027 to 2028 tax year. The £1,000 allowance applies until then.
Can a limited company use the trading allowance?
No. The trading allowance is for individuals. A company pays Corporation Tax on its profits.
Is the trading allowance based on profit?
No. It is based on gross trading income before expenses.
Should I form a company before April 2027?
Not because of the Budget alone. Form a company when the structure suits your business. If tax is a big factor, speak to an accountant about your circumstances.
Thinking about going limited?
If your side hustle is growing beyond pocket money, a limited company can give it a proper foundation. Start your free company registration, or read our guide to sole trader versus limited company first.
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