Millions of UK households earning extra income through popular online platforms are facing a significant financial hit due to a frozen tax rule, new analysis reveals.
The Frozen Allowance Eroding Your Income
According to investment platform AJ Bell, a ‘stealth’ effect caused by inflation is leaving side hustlers substantially worse off. The rule in question is HMRC's trading allowance, which permits individuals to earn up to £1,000 tax-free from side income separate from their main job.
This allowance was introduced by the Conservative government in 2017 and has remained unchanged since. Analysis shows that if it had risen with inflation, it would be worth £1,331 today and would reach approximately £1,462 by 2030.
Laura Suter, Director of Personal Finance at AJ Bell, explained the impact: “While everyone can earn up to £1,000 tax free from side hustles... the so-called ‘trading allowance’ has been frozen at the same level since it was introduced in 2017. That effectively means that anyone who uses it has seen their tax-free trading allowance eroded by inflation.”
Who is Affected and The Real-Terms Cost
This change affects a vast number of people across the country who supplement their income through various means. The platforms and activities impacted include:
- Selling goods on Vinted, Depop, eBay, Facebook Marketplace, Amazon Marketplace, and Etsy.
- Renting out property or rooms via Airbnb.
- Other casual trading like babysitting, dog-walking, renting a driveway, or selling homemade goods.
The financial consequences are now being quantified. For the 2025 tax year, a basic-rate taxpayer (paying 20% income tax) earning over £1,000 from a side hustle is £66 worse off in real terms. A higher-rate taxpayer (paying 40%) loses £132 annually.
Looking ahead, the yearly loss is projected to grow. By the end of the decade, basic-rate taxpayers will be £92 per year worse off, while higher-rate taxpayers will lose £185 annually.
The Long-Term Impact on Your Finances
The cumulative effect for those who started a side hustle in 2017 and continue it through to 2030 is stark. Over that 13-year period, a basic-rate taxpayer will have lost a total of £571. For a higher-rate taxpayer, the total loss balloons to £1,142.
“The trading allowance means that if you earn £1,000 from property or trading income it will be tax free – if you’re a basic-rate taxpayer this will save you up to £200 a year, or £400 a year for a higher-rate taxpayer,” Suter added, highlighting the value of the relief even in its frozen state.
She also offered crucial guidance for side hustlers: “The good news is that if you earn less than £1,000 a year from your side hustle then you won’t usually need to fill out a tax return. Just make sure you keep track of any relevant paperwork proving your income in case HMRC asks for it later.”
“If you earn more than £1,000 from your side hustle in a tax year you’ll still benefit from the tax break, but you’ll need to fill out a tax return to declare the extra income and pay any relevant tax.”
The analysis underscores a growing financial pressure on households relying on supplementary income, as a tax policy designed to encourage enterprise fails to keep pace with the rising cost of living.
