What is the trading allowance?
The trading allowance is a £1,000 yearly tax exemption for income from self-employment, casual work or selling, so small side earnings can be received tax free.
What the trading allowance means
The trading allowance lets individuals earn up to £1,000 a year in gross trading income without paying tax on it or registering for Self Assessment. It is aimed at small side businesses: selling crafts, occasional freelance jobs, babysitting, or running a small online shop alongside a job.
The £1,000 is based on gross income, before any expenses. If your trading income is more than £1,000, you can still use the allowance: instead of deducting your actual expenses, you deduct £1,000 from your income. This is called partial relief.
Example
Ellie has a full-time job and sells handmade jewellery online in the evenings.
| Scenario | Income | Actual costs | Best option | Taxable profit |
|---|---|---|---|---|
| Year 1 | £850 | £300 | Full trading allowance | £0, nothing to report |
| Year 2 | £3,200 | £600 | Deduct £1,000 allowance | £2,200 |
| Year 3 | £6,500 | £2,400 | Deduct actual expenses | £4,100 |
In years 2 and 3 Ellie must register for Self Assessment by 5 October after the tax year and file a return. She picks whichever deduction gives the lower profit.
Who cannot use it
- You cannot use it against income from a partnership you are a member of.
- You cannot use it for income from a company you, or someone connected to you, own or control, or from your employer.
- You cannot combine the allowance with deducting actual expenses for the same income.
There is a separate £1,000 property allowance for small amounts of rental income, which works in a similar way.
Why it matters for your business
For genuinely small side income, the allowance removes the paperwork entirely. As income grows, it is worth comparing the £1,000 deduction with your real costs every year. If your costs are higher, or you make a loss you want to set against other income, claiming actual expenses is better.
Online platforms now report sellers' income to HMRC under the digital platform reporting rules, so it is worth keeping simple records of what you earn even when you think you are under the limit.
If you are unsure whether your activity counts as trading at all, for example selling a few personal belongings, HMRC's badges of trade help decide.
Common questions
No, if your total gross trading income for the tax year is £1,000 or less and the trading allowance applies, you do not need to register or report it. You may still need to if you want to claim a loss or pay voluntary Class 2 National Insurance.
No. It is £1,000 per person per tax year across all your trading income combined. If you have two side businesses, their gross income is added together. The separate £1,000 property allowance covers rental income.