Earning extra money from freelancing, online selling or a side hustle? You may be able to keep some of those earnings tax-free. The £1,000 trading allowance lets eligible individuals earn up to £1,000 in qualifying gross trading income each tax year without paying income tax on that income.
The allowance can make managing small earnings simpler, particularly if you work for yourself alongside a regular job. However, your eligibility and Self Assessment responsibilities depend on your total income and circumstances.
The government has also announced plans to increase the allowance to £3,000 from April 2027. Here’s how the current rules work, who qualifies and what the changes could mean for you.
What Is the £1,000 Trading Allowance?
The trading allowance is an annual tax relief provided by HM Revenue & Customs (HMRC). It applies to qualifying income from self-employment, casual services and certain other money-making activities.
According to HMRC’s trading allowance guidance, eligible individuals can receive up to £1,000 in qualifying gross trading income each tax year without paying Income Tax on those earnings.
The important distinction is that the £1,000 limit applies to gross income, not profit.
Gross income is the total amount earned before deducting business expenses, such as materials, equipment or selling fees.
The trading allowance is also separate from your Personal Allowance. If your earnings exceed the trading allowance, the resulting taxable profit may contribute to your overall tax liability.
Understanding how the allowance affects tax on self-employed income can help you estimate what you might owe HMRC.
Who Can Claim the Trading Allowance?
The trading allowance is particularly useful for freelancers, casual workers and people earning additional income alongside their main employment.
Income That May Qualify
Common examples include:
- Freelancing: Earning money through writing, graphic design or other independent services.
- Side hustles: Providing occasional gardening, tutoring, babysitting or cleaning services.
- Online trading: Selling handmade products or buying goods specifically to resell.
- Equipment hire: Receiving payments for hiring out personal tools or equipment.
For example, someone earning £700 annually from occasional tutoring may qualify for full trading allowance relief.
However, selling unwanted personal belongings does not automatically count as trading. HMRC considers the nature of the activity, including whether items were purchased specifically for resale.
When the Allowance Does Not Apply
Certain income is excluded from the allowance.
For example, the trading allowance cannot be used against trading income from a partnership. Restrictions also apply to certain payments received from employers, connected companies and connected partnerships.
These exclusions matter particularly when your additional earnings come from an organisation with which you already have a business or employment relationship.
How Does the £1,000 Trading Allowance Work?
The allowance works differently depending on how much qualifying gross trading income you receive during the tax year.
If You Earn £1,000 or Less
When your total qualifying gross trading income is £1,000 or less, the allowance can cover the full amount. HMRC calls this full relief.
Example: Emma earns £650 from occasional freelance writing during the 2026/27 tax year.
Because her gross trading income is below £1,000, the entire £650 can be covered by the allowance.
Emma generally does not need to report these earnings solely because she received them, although other circumstances may create a reporting obligation.
If You Earn More Than £1,000
When qualifying income exceeds £1,000, you can generally deduct the allowance instead of claiming actual business expenses. This is known as partial relief.
Example: James earns £1,800 from gardening services.
His calculation is:
- Gross trading income: £1,800
- Trading allowance: £1,000
- Taxable trading profit: £800
The remaining £800 is his taxable trading profit under this method, not his final tax bill.
The Low Incomes Tax Reform Group’s trading allowance guidance provides further examples of full and partial relief.
What If You Have More Than One Side Hustle?
You do not receive a separate £1,000 allowance for each qualifying activity.
Suppose you earn £550 from tutoring and £700 from selling handmade products. Your combined gross trading income is £1,250, which exceeds the current threshold.
Marketplace fees also matter. If you make £1,050 in sales and the platform deducts £100 before paying you, your gross trading receipts remain £1,050, even though only £950 reaches your bank account.
Trading Allowance vs Allowable Expenses: Which Is Better?
The trading allowance offers a straightforward way to reduce taxable trading income, but claiming actual allowable business expenses may sometimes be more beneficial.
If your gross trading income exceeds £1,000, you can generally choose between deducting the trading allowance and deducting your actual allowable business expenses. You cannot use both methods against the same income.
Consider this example:
| Calculation | Trading allowance | Actual expenses |
|---|---|---|
| Gross trading income | £2,000 | £2,000 |
| Deduction | £1,000 | £1300 |
| Taxable profit | £1,000 | £700 |
Assuming the £1,300 expenses are fully deductible, claiming actual expenses produces a lower taxable profit.
If your business costs exceed £1,000, comparing the two methods is worthwhile. Claiming actual expenses may also be preferable when your business makes a loss.
Keeping accurate expense records helps you make an informed choice.
Do You Need to Register for Self Assessment?
The trading allowance can reduce your taxable income, but your reporting responsibilities depend on your circumstances.
When You Earn £1,000 or Less
Under the current rules, individuals earning £1,000 or less in qualifying gross trading income generally do not need to register for Self Assessment solely because of those earnings.
However, you may still need to register or submit a return for other reasons, such as claiming certain tax reliefs or making voluntary National Insurance contributions.
Having a full-time PAYE job does not automatically prevent you from using the trading allowance for separate qualifying income.
When You Earn More Than £1,000
If your gross self-employment income exceeds £1,000 during the 2026/27 tax year, you generally need to register for Self Assessment.
Once registered, HMRC issues a Unique Taxpayer Reference (UTR), which identifies you within the Self Assessment system. If you are unfamiliar with the registration process, our guide explains how to get a UTR number and how long it usually takes.
The usual registration deadline is 5 October following the relevant tax year. For example, the registration deadline for the 2026/27 tax year is 5 October 2027.
You can check your responsibilities through HMRC’s Self Assessment registration service.
Depending on your tax liability, you may also need to make payments on account towards future tax bills. Some self-employed individuals are additionally subject to Making Tax Digital for Income Tax requirements, depending on their qualifying income.
For eligible sole traders, Making Tax Digital for Income Tax also introduces digital record-keeping and quarterly reporting requirements.
If you want to build your understanding of tax returns, Skill Up’s UK Self Assessment Tax Return Diploma offers structured online learning about Self Assessment, tax calculations and related reporting processes.
Is the Trading Allowance Increasing to £3,000 in 2027?
Yes. On 28 October 2026, the UK government announced plans to increase the trading allowance from £1,000 to £3,000, starting on 6 April 2027.
The proposed change also increases the associated Income Tax Self Assessment reporting threshold for qualifying trading income to £3,000.
Here’s how the change affects different tax years:
- 2026/27 tax year: The trading allowance remains at £1,000. Eligible individuals earning up to this amount in qualifying gross trading income can generally benefit from full relief.
- 2027/28 tax year: The government plans to increase the trading allowance to £3,000 from 6 April 2027, allowing eligible individuals to receive more qualifying trading income tax-free.
The change is detailed in HMRC’s October 2026 policy announcement.
As of November 2026, the increase remains subject to legislation. Until the new rules take effect, the £1,000 allowance continues to apply for the 2026/27 tax year.
Importantly, the planned increase applies only to the trading allowance. The separate property allowance will remain at £1,000.
Is the Trading Allowance the Same as the Property Allowance?
No. Although both allowances currently provide up to £1,000 of annual tax relief, they apply to different types of income.
The trading allowance covers qualifying trading and miscellaneous income. The property allowance applies to qualifying income received from land or property.
For example, someone earning money from freelance work and renting out a property may qualify for separate allowances, provided they meet the relevant rules.
Landlords should consider their own self-assessment obligations when reporting rental income.
If you receive both rental and self-employment income, it is also worth understanding how Making Tax Digital affects Income Tax reporting, as the qualifying income calculation may include both sources.
What Records Should You Keep for the Trading Allowance?
Even if your qualifying trading income is below £1,000, HMRC requires you to keep income records so you can demonstrate that your earnings fall within the allowance.
Useful records include:
- Invoices and payment confirmations.
- Bank statements showing business payments.
- Online marketplace sales reports.
- Records of gross earnings and platform fees.
- Business expense receipts, where relevant.
Good records help you calculate your total income accurately and compare the trading allowance with actual expenses.
If you need to submit a tax return, keeping track of filing and payment deadlines is also important. Late submissions or payments can result in Self Assessment penalties.
Conclusion
The £1,000 trading allowance can make managing small amounts of freelance, self-employed or side-hustle income simpler.
Check your gross earnings, eligibility and the rules for the relevant tax year before choosing how to calculate your taxable profit. Accurate records and an understanding of your Self Assessment responsibilities will help you manage your income with confidence.
Frequently Asked Questions (FAQs)
Can I Claim the Trading Allowance if I Have a Full-Time Job?
Yes. PAYE employees can use the trading allowance for separate qualifying trading income, provided they meet the eligibility rules. Employment income and trading income are treated separately.
Does Selling on eBay or Vinted Count Towards the Trading Allowance?
It depends on the activity. Selling unwanted personal belongings is not normally considered trading. Regularly buying or making products specifically for resale may generate trading income.
Can I Claim the £1,000 Allowance for Two Different Side Hustles?
No. The £1,000 limit applies to your combined qualifying trading and miscellaneous income during the tax year. Different activities do not each receive a separate allowance.
Does the Trading Allowance Affect Universal Credit?
The trading allowance does not reduce earnings for Universal Credit purposes in the same way as it does for Income Tax. Universal Credit uses separate rules to assess self-employed income.
Is the Trading Allowance Separate From the Personal Allowance?
Yes. The trading allowance provides relief against qualifying trading income, while the Personal Allowance generally determines how much taxable income you can receive before paying Income Tax.
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