Trading Allowance

The trading allowance is a UK tax relief that allows individuals to earn up to £1,000 per tax year from self-employment or casual activities without needing to report the income to HMRC or pay tax on it. The allowance simplifies tax affairs for people with small side incomes and reduces the administrative burden of registering for Self Assessment.

How the Allowance Works

If your gross trading income (from self-employment or casual work) is £1,000 or less in a tax year, you do not need to tell HMRC about it. If your income exceeds £1,000, you can choose either to deduct the £1,000 allowance from your gross income or to deduct your actual allowable business expenses. The allowance is a flat deduction — you do not need receipts for the £1,000. Once you claim the allowance, you cannot also claim actual expenses for the same activity.

Choosing Allowance Versus Expenses

You should choose whichever method gives the higher deduction. If your actual expenses are less than £1,000, the trading allowance is better because you deduct the full £1,000 regardless of your actual costs. If your actual expenses exceed £1,000, it is better to deduct those instead. You can choose differently each year, but you must apply your choice consistently within each activity. For example, if you have two separate side hustles, you can use the allowance for one and actual expenses for the other.

Side Hustle Income

The trading allowance is commonly used by people earning from side hustles: selling items on eBay or Vinted, freelance writing, dog walking, tutoring, or doing occasional paid tasks. If your total income across all side activities exceeds £1,000, you must register for Self Assessment and declare the income. Note that the allowance applies to each individual — it is per taxpayer, not per activity. A couple could each earn £1,000 tax-free, giving £2,000 total household relief.

Property Income Versus Trading

The £1,000 allowance covers trading income only. A separate property allowance of £1,000 applies to rental income from land or property (excluding letting of furnished rooms in your own home under the Rent a Room Scheme). If you have both trading income and property income, you could benefit from both allowances simultaneously — up to £2,000 of combined tax-free income. However, the trading allowance cannot be used against property income and vice versa.

Reporting Requirements

If your gross trading income exceeds £1,000, you must register for Self Assessment and report the income on your tax return. You report the gross income and then deduct either the trading allowance or actual expenses. If you use the trading allowance, you simply enter the allowance value on the return. If your turnover is below £1,000 and you have no other reason to file a Self Assessment return, you do not need to do anything — the income is genuinely tax-free and does not need to be reported.