Do you pay tax on side project income in the UK? The £1,000 rule, explained with real numbers
You shipped a template, a plugin, an ebook — and someone bought it. Somewhere between the first sale and the first hundred, a question starts nagging: does HMRC need to know about this? The answer has a genuinely simple core (£1,000 of gross income, one deadline) wrapped in edge cases that hit developers specifically. Here is the whole picture, with the numbers from our own storefront where they help.
The obligatory line first, and we mean it: this is general information, not tax advice. If real money is at stake, spend an hour with an accountant — it costs less than getting it wrong.
The £1,000 trading allowance
Every individual in the UK gets a trading allowance of £1,000 per tax year (6 April to 5 April). If your gross trading income — sales, bounties, freelance bits, everything self-employed combined — is £1,000 or less in the year, it is simply not taxable and you don't have to tell HMRC at all. No registration, no return, nothing.
Three details in that sentence do the real work:
- Gross means before expenses. Not profit. If you sold £1,100 of templates and spent £900 on tooling, you're over the line, even though you only "made" £200.
- It's per person, not per project. One template store, two bounty platforms and a weekend of freelancing share the same single £1,000. You can't claim it per income stream.
- It's trading income. Salary from your day job lives in a different system (PAYE) and doesn't touch this allowance. Bank interest, dividends — also separate. This allowance is for money you earn by selling things or doing work outside employment.
Open-source bounty payouts — Algora, Opire, a company paying you directly to fix an issue — count toward the same pot as product sales. It's all income from your activities as (in effect) a sole trader.
Over £1,000: the 5 October deadline
Cross £1,000 gross in a tax year and two things happen:
- You must register for Self Assessment by 5 October following the end of that tax year. Cross the line in February 2027 (the 2026/27 tax year, which ends 5 April 2027) and you have until 5 October 2027 to register. The return itself is then due 31 January 2028 online. Registration is a form on GOV.UK and takes minutes; the penalty regime for late filing starts at £100 and compounds, so don't sit on it.
- You choose, on the return, between two ways of working out taxable profit:
- Partial relief: deduct a flat £1,000 (the allowance) from gross income, no expense receipts needed. Sell £2,500, pay tax on £1,500.
- Actual expenses: deduct what you really spent, itemised, instead of the allowance. You cannot do both.
For digital products the choice is usually easy, because the economics are absurdly lean. Our storefront's entire expense line for the year so far is one domain registration — about £8.50. If yours looks similar, the flat £1,000 deduction beats your real expenses by two orders of magnitude. Itemising only wins if you're buying hardware, paid tools, or ads that together clear £1,000.
A worked year
Say you sell a £19 template (as we do) and pick up the odd bounty:
| Income | Amount |
|---|---|
| 40 template sales × £19 | £760 |
| Two bounty payouts ($300 + $150, converted on receipt) | ~£330 |
| Gross trading income | £1,090 |
You're £90 over. Consequences: register by the following 5 October, file a return, and — using partial relief — pay tax on £90. At the 20% basic rate that's £18 of tax on £1,090 of income. The paperwork is more painful than the bill; the allowance means the first £1,000 stays untaxed even once you're over it.
Note what the table did with the bounties: converted to sterling at the rate on the day the money arrived, and counted when received. On the default cash basis you count income when it's paid to you, not when you earned it — a bounty merged in March but paid out in April lands in the next tax year.
The merchant-of-record wrinkle
Here's the part that's specific to how developers sell in 2026 and that generic side-hustle guides skip entirely.
If you sell through a merchant of record — Polar, Paddle, Gumroad since 2025 — the platform is legally the seller. The customer buys from them; they handle VAT in the buyer's country; then they pay you your share under your agreement with them. (This is the main reason to use one — we've written up the fee maths of Gumroad vs Polar separately.)
That structure raises a real question: is your gross income the £19 the customer paid, or the ~£17.30 the platform remits to you after its fee? On a classic marketplace where you're the seller (eBay, Etsy), the standard treatment is clear: the full sale price is income and the platform fee is your expense. With a merchant of record there's a respectable argument your income is only what the platform owes you, because you never sold anything to the end customer — but HMRC guidance doesn't address the arrangement head-on.
Why it matters: near the boundary, the two readings can put you on different sides of the £1,000 line — and if you're over, the "full sale price" reading plus fees-as-expenses interacts badly with the flat allowance, since claiming the £1,000 allowance means you can't also deduct those platform fees.
Our approach, which we'd suggest until you have professional advice: record both numbers per sale (gross charge and net remittance — any platform with an orders API makes this trivial), and treat the higher one as your gross income for the £1,000 test. If the conservative reading says you're over, register. Registering when you arguably didn't need to costs you an evening; the reverse costs penalties.
The £3,000 change that isn't here yet
You may have seen headlines that "side hustles under £3,000 won't need a tax return any more." The real position, as of July 2026: the government has announced that the Self Assessment filing threshold for trading income will rise from £1,000 to £3,000 within this parliament, with income between the two declared through a simpler online process instead of a full return. No start date has been set, and the £1,000 tax-free allowance itself is not changing. Until it's actually in force: over £1,000 means register, full stop. Don't plan around a press release.
The checklist
- Under £1,000 gross for the tax year, all side income combined → nothing to do.
- Track gross income from the first sale — you want to know when you approach £1,000, not discover it in April. (Our own system flags at £800; an orders-API script or a spreadsheet both work.)
- Over £1,000 → register for Self Assessment by the following 5 October; deduct the flat £1,000 unless your real expenses beat it.
- Selling via a merchant of record near the boundary → record gross and net, test against the higher, ask a professional if it decides the outcome.
- Money counts when it reaches you, converted to GBP on that day.
Rules verified 3 July 2026 against GOV.UK's trading allowance guidance and HMRC's Self Assessment deadlines. Tax rules change at Budgets; if you're reading this in a later tax year, re-check the numbers.