How the £1,000 trading allowance lets you earn tax free from a side income, when you must register, and whether to claim it instead of your expenses.
If you make a bit of money on the side, from selling online to a weekend gig, you may have heard of the trading allowance but not be sure how it works. It is one of the simplest and most useful tax breaks for people with small or occasional self employed income. This guide explains the £1,000 trading allowance for 2026/27, who it helps, and when to use it.
The trading allowance lets you earn up to £1,000 a year from self employment or casual work without paying any tax on it. It was introduced to take small amounts of casual income out of the tax system entirely, so people with a minor side income do not have to worry about tax returns over small sums.
It is ideal for side hustles and occasional earnings, such as selling items you make, doing odd freelance jobs, tutoring, or earning a little from a hobby. If your total income from these activities is £1,000 or less in the tax year, you usually have nothing to report to HMRC at all.
The £1,000 figure is gross income, meaning your total takings before any expenses. If your self employed income for the year is £1,000 or less, you do not need to register for Self Assessment or pay tax on it. If it is more than £1,000, you do need to register, but you then have a choice. You can either deduct your actual business expenses from your income in the normal way, or simply deduct the £1,000 allowance instead, whichever leaves you with the lower taxable profit.
The choice matters. If your expenses are less than £1,000, claiming the allowance gives you a bigger deduction and a lower tax bill. If your expenses are more than £1,000, you are better off claiming your actual costs. You cannot do both for the same income, so it is worth working out which is more generous each year.
The allowance cannot be used in some situations, for example against income from a partnership, or against income from a company you control. It is aimed at genuine small scale self employment. It also does not change the rules for employees, whose pay is taxed through PAYE in the normal way.
There is a separate £1,000 allowance for small amounts of property income, which works in the same way. If you earn a little from renting out a room or a driveway, the first £1,000 can be tax free, and the two allowances are independent of each other, so you could potentially use both in the same year.
The trading allowance lets you earn up to £1,000 a year from self employment tax free, and usually without needing to tell HMRC.
Yes. Once your self employed income passes £1,000 you must register for Self Assessment, then claim either the allowance or your actual expenses.
No. For the same income you claim either the £1,000 allowance or your actual expenses, whichever gives the lower taxable profit.
Yes, there is a separate £1,000 property allowance that works the same way, and it is independent of the trading allowance.
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