What is the Trading Allowance and How Does It Work UK?

The UK trading allowance is a £1,000 tax-free amount for income from self-employment, casual freelance work, online platforms, hobbies, side hustles, or other miscellaneous trading activity. If your gross trading income is £1,000 or below per tax year, you don’t need to register for Self Assessment or pay any tax on it. If gross income exceeds £1,000, you must register and choose between claiming the £1,000 allowance OR claiming actual allowable expenses — whichever produces the lower taxable profit.

This is the full mechanic for 2026/27.

What the trading allowance covers

The trading allowance applies to a broad range of income types:

• Self-employed business income (sole trader, partnership).
• Casual freelance work (writing, design, tutoring).
• Online platform earnings (Etsy, Depop, Vinted reselling, Amazon sellers).
• Gig economy work (Uber, Deliveroo, Amazon Flex — when self-employed, not employed).
• Hobbies that generate income (crafts, pet sitting, gardening).
• Casual property maintenance and similar services.
• Tutoring and coaching income.

What it doesn’t cover:

• Employed income (PAYE-paid salary).
• Property letting income (uses a separate £1,000 property allowance instead).
• Dividend income (uses the £500 dividend allowance).
• Crypto disposals (uses the £3,000 CGT annual exemption).

The framework is documented at gov.uk: trading and property allowances.

How the £1,000 threshold works

The trading allowance is calculated on gross income (before expenses), not net profit:

• Gross income: total revenue from your side activity.
• £1,000 threshold applies to this gross figure.

If your gross trading income is £1,000 or less:

• No need to register for Self Assessment.
• No need to file any return.
• Income is effectively tax-free.
• Whether you had expenses doesn’t matter.

If your gross trading income is more than £1,000:

• You must register for Self Assessment.
• You file a return covering the trading income.
• You can claim either the £1,000 allowance or actual expenses — whichever is more favorable.
• The chosen deduction reduces your taxable profit.

Two options when above £1,000

When you cross the £1,000 threshold, you have two ways to calculate taxable profit:

Option A: Claim actual expenses

Deduct your real business expenses (materials, equipment, advertising, mileage, share of household costs, etc.) from gross income.

This is better when your expenses are higher than £1,000.

Option B: Claim the £1,000 trading allowance

Deduct £1,000 from gross income, regardless of actual expenses.

This is better when your expenses are lower than £1,000.

You can’t claim both. You choose the higher deduction for the lower taxable profit.

A worked example:

• Gross income: £4,500.
• Actual expenses: £400.
• Option A (expenses): £4,500 − £400 = £4,100 taxable.
• Option B (allowance): £4,500 − £1,000 = £3,500 taxable.

Choose Option B. Save £120 of tax (at 20% basic rate on the £600 difference).

If your expenses are £1,500:

• Option A (expenses): £4,500 − £1,500 = £3,000.
• Option B (allowance): £4,500 − £1,000 = £3,500.

Choose Option A. £100 less tax owed.

What counts as “gross trading income”?

For the trading allowance, count:

• Revenue from selling goods or services.
• Income from online platform fees received (gross of platform commissions).
• Cash, bank transfers, PayPal, etc. — all forms of payment.

Don’t count:

• Refunds you give to customers (these reduce gross income).
• Returns and refunds you receive from suppliers.

A common confusion: if you sell £2,000 worth of goods but the platform deducted £200 in commission, you still received £1,800 net. The gross trading income is £2,000 (what the customer paid), not £1,800. Platform commission is a deductible expense if you claim Option A.

Multiple trading activities

If you have multiple side activities (e.g. tutoring AND selling crafts), the trading allowance is per person, not per activity:

• Total of all trading income: £1,800 (e.g. £800 tutoring + £1,000 crafts).
• Single £1,000 allowance applies.
• Taxable: £800.

You can’t claim £1,000 for each activity separately.

Trading allowance vs property allowance

There’s also a £1,000 property allowance for casual property rental income:

• Letting a parking space.
• Holiday letting income.
• Hosting through Airbnb (casual amounts).

This is separate from the trading allowance. You can have both:

• Property income £900 → use property allowance (no tax).
• Trading income £900 → use trading allowance (no tax).

Both within their respective £1,000 thresholds = no Self Assessment needed.

Why the trading allowance exists

The UK introduced the trading allowance in 2017 to:

• Reduce admin for small-scale traders.
• Acknowledge that small side income shouldn’t require full Self Assessment.
• Simplify the tax system for hobbyists and casual sellers.

Before the allowance, even £200 of side income technically needed declaring (though in practice, HMRC didn’t chase such small amounts). The allowance formalised the position.

What you still need to do above £1,000

If you cross £1,000 of gross trading income:

1. Register for Self Assessment by 5 October following the end of the tax year (e.g. 5 October 2027 for 2026/27 tax year).
2. Get a UTR (Unique Taxpayer Reference) from HMRC.
3. File Self Assessment online by 31 January following the tax year end.
4. Pay any tax due.

The tax owed includes:

• Income tax on the taxable profit, at your marginal rate.
• Class 4 NI at 6% on profit between £12,570 and £50,270.
• (No Class 2 NI required for most since April 2024.)

If your total Self Assessment tax bill exceeds £1,000, you also pay Payments on Account — see our self-assessment first-timer guide.

What if I’m already employed?

If you have PAYE income from a job AND trading income above £1,000, you must register for Self Assessment for the trading income — even though your job’s tax is handled through PAYE.

The Self Assessment covers:

• Job income (which is already taxed via PAYE; you report the PAYE deductions).
• Trading income (taxed via the return).

You don’t pay tax twice — Self Assessment reconciles the year’s overall tax, with credit for PAYE already paid.

Worked examples

Scenario 1: Hobbyist crafter, £750 gross income

• Below £1,000 threshold.
• No Self Assessment needed.
• No tax to pay.
• No paperwork required.

Scenario 2: Side photographer, £2,300 gross, £150 expenses

• Above £1,000 → must register.
• Option A: £2,300 − £150 = £2,150 taxable.
• Option B: £2,300 − £1,000 = £1,300 taxable.
• Choose Option B. Tax (basic rate): £260.

Scenario 3: Freelance writer, £8,000 gross, £2,100 expenses

• Above £1,000 → must register.
• Option A: £8,000 − £2,100 = £5,900 taxable.
• Option B: £8,000 − £1,000 = £7,000 taxable.
• Choose Option A. Tax (basic rate): £1,180. Plus Class 4 NI: £0 (under £12,570 SE profit threshold).
• Total: £1,180.

Internal links

• Do I need to pay tax on my side hustle UK?
• Do I need to register as self employed for a side hustle?
• What expenses can I claim as self employed UK?

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This guide is information, not regulated financial advice. Trading allowance rules can change between budgets — confirm on gov.uk before acting.