The £1,000 Trading Allowance Explained

The trading allowance lets you earn up to £1,000 a tax year from self-employment, casual work or other miscellaneous sources without paying tax on it or, in most cases, telling HMRC. If you earn more than £1,000, you must register for Self Assessment, and you can then choose to deduct the £1,000 allowance instead of your actual expenses. The limit is tested on what you received, not on what you had left after costs. This guide explains how it works and how to decide whether to use it.

Key takeaways

• The allowance is £1,000 of gross trading, casual or miscellaneous income per tax year.
• At £1,000 or less you normally have nothing to report. This is called full relief.
• Over £1,000 you must register for Self Assessment by 5 October after the tax year ends.
• Over £1,000 you can deduct the allowance instead of expenses, never both. This is called partial relief.
• It is one allowance across all your trades combined, not one each.

What is the trading allowance?

The trading allowance is a tax exemption for individuals. HMRC's guidance on tax-free allowances on property and trading income says it covers income from self-employment, from casual services such as babysitting or gardening, and from hiring out personal equipment such as power tools. Typical examples are selling handmade items online, a few paid gigs a year, occasional tutoring, or a handful of delivery shifts.

It exists so that people with very small amounts of side income do not have to complete a tax return for the sake of a few pounds. It is separate from the Personal Allowance, which is the amount of total income most people can have before paying Income Tax. Our guide to the Personal Allowance and Income Tax bands covers that.

Gross income, not profit

The £1,000 test looks at gross income. HMRC describes this as the total amount you would put on your tax return before any allowances or expenses are taken off. Fees a platform keeps before paying you, the cost of stock, postage and fuel are all ignored for this test.

This catches people out. If you sold £1,300 of goods and spent £900 on materials, your profit is only £400, but your gross income is over the limit and you have to tell HMRC.

Full relief: gross income of £1,000 or less

If your combined gross trading and miscellaneous income for the tax year is £1,000 or less, you do not need to tell HMRC about it or pay tax on it, unless you have another reason to file a return. You must still keep a record of the income. HMRC suggests records such as copies of invoices, a spreadsheet of receipts, statements from whoever paid you, and bank statements.

Some people in this position choose to register anyway. HMRC's guidance says you must register and file if, for example, you have made a loss and want to claim relief for it, you want to pay voluntary Class 2 National Insurance contributions, or you want to claim Maternity Allowance or Tax-Free Childcare based on your self-employment.

Partial relief: gross income over £1,000

Once your gross income is over £1,000, two things follow. First, you must register for Self Assessment by 5 October after the end of the tax year and declare the income on a return. Second, when working out your taxable profit you have a choice:

• deduct the £1,000 trading allowance from your gross income; or
• deduct your actual allowable business expenses.

You cannot do both. HMRC is explicit that if you claim the allowance you cannot deduct any other expenses or allowances against that income. The deduction also cannot be more than the income itself, so the allowance cannot be used to create a loss.

Claiming the allowance or claiming actual expenses

The decision is made each tax year, so you can use the allowance in a year with low costs and claim expenses in a year when you buy equipment. If you are claiming expenses, our list of sole trader allowable expenses shows what normally counts.

When you cannot use the allowance

HMRC's guidance says you cannot use the allowance in a tax year if you have any trading income from:

• a company that you, or someone connected to you, own or control;
• your employer, or the employer of your spouse or civil partner;
• a partnership in which you, or someone connected to you, are partners.

These rules stop the allowance being used to take the first £1,000 of pay from your own company or your day job tax free by labelling it as freelance work. If any of your side income comes from one of these sources, take advice before relying on the allowance.

The separate property allowance

There is a second, separate £1,000 allowance for income from land or property. If you have both kinds of income, HMRC says you get a £1,000 allowance for each.

Step by step: working out what to do

1. Add up your gross income from all trading, casual and miscellaneous sources for the tax year, 6 April to 5 April. Use the amounts before fees and costs.
2. Check the exclusions. If any of it comes from your own company, your employer or a partnership you are in, the allowance may not be available to you for that year.
3. If the total is £1,000 or less, keep your income records. You normally have nothing more to do unless you already file a return or want to register for one of the reasons above.
4. If the total is over £1,000, register for Self Assessment by 5 October following the tax year.
5. Add up your allowable expenses for the same period.
6. Compare. Expenses under £1,000: the allowance usually gives the lower profit. Expenses over £1,000: claim the expenses.
7. Complete the return on the basis you chose and keep the records that support it.

For 2025/26, the registration date was 5 October 2026 and the online return is due by 31 January 2027. If you have only just realised you were over £1,000, register now rather than waiting. Our guide to the Self Assessment registration deadline explains what happens next.

Worked example (illustrative)

"Priya", an illustrative example, is employed full time and sells refurbished furniture online at weekends. In 2025/26 her gross sales were £3,200. She spent £400 on paint, fittings and delivery.

Her gross income is over £1,000, so she must register for Self Assessment and file a 2025/26 return by 31 January 2027. She then compares her two options:

• Using the trading allowance: £3,200 less £1,000 gives a taxable profit of £2,200.
• Claiming actual expenses: £3,200 less £400 gives a taxable profit of £2,800.

The allowance gives the lower figure, so she uses it and does not claim the £400.

In 2026/27 she buys a sander and hires a van several times, and her expenses rise to £1,600 on sales of £3,500. This time actual expenses give a taxable profit of £1,900, compared with £2,500 using the allowance, so she claims her expenses and keeps every receipt.

Priya and her figures are invented for illustration and are not a real client.

Common mistakes

• Testing profit instead of income. The £1,000 limit applies before expenses.
• Claiming the allowance and expenses together. It is one or the other.
• Assuming each activity has its own £1,000. All trading and miscellaneous income is added together.
• Using it against income from your own company or employer. The allowance is not available there.
• Missing registration. Going over £1,000 by a small amount still means registering. See our guide to side income and Self Assessment.

How we can help

We prepare Self Assessment returns for people with side income, compare the trading allowance against your actual expenses, and file on the basis that fits your circumstances. Our personal tax service starts from £180 per year on a fixed fee. View our pricing, or contact us well ahead of 31 January 2027.