Tax officials have issued a fresh warning to millions of Britons who are planning to boost their income with a side hustle in the new year. HM Revenue and Customs (HMRC) is urging anyone considering making extra cash in 2026 to check their potential tax liabilities to avoid unexpected bills or fines.
The £1,000 Trading Allowance and Capital Gains Rules
HMRC has clarified the rules for different types of side income. For individuals selling unwanted personal items from their home, such as old clothes or an unused television, there is typically no tax to pay. These small-scale, occasional sales do not class someone as an official trader.
However, the tax authority highlighted two critical financial thresholds. Firstly, if you sell personal belongings for more than £6,000 in a single transaction, you may need to inform HMRC as you could be liable for Capital Gains Tax.
Secondly, and more broadly applicable, is the trading allowance. If you earn over £1,000 in a year from selling goods or services you have made or bought – on top of your main salary – you will likely need to declare this income and may have to pay tax.
Registering as a Sole Trader
HMRC stated that if your side hustles generate income that exceeds the allowance, they are likely to be classified as 'trading'. In this case, you must register for Self Assessment as a sole trader.
"If you do need to tell us about money you've made from side hustles, you will need to register for Self Assessment as a sole trader," an HMRC spokesperson explained. "If you don't tell HMRC when you need to, you could end up with an unexpected tax bill or penalty."
They provided a clear example: "[If] you use online platforms and apps to sell some sweaters you no longer wear [and] you occasionally sell unwanted gifts and items from around your home when you're having a clear out, none of these are worth anywhere close to £6,000. You don't need to tell us and won't pay tax."
Context of Salary Sacrifice Changes
This guidance comes alongside other significant tax developments. HMRC's proposed changes to salary sacrifice arrangements for pension contributions have been detailed in a new impact assessment report.
The report reveals that 7.7 million workers currently use salary sacrifice to boost their pension pots. Of this group, a substantial 3.3 million (around 44%) sacrifice more than the proposed new cap of £2,000 per year.
Government estimates indicate that approximately 4.3 million people will remain unaffected by this new limit. The changes highlight the importance for all earners, whether through employment or side ventures, to stay informed of evolving tax rules to ensure full compliance and avoid financial penalties.
