- The £1,000 limit applies to your combined eligible gross income across all trades and qualifying miscellaneous activities, not separately to each income source.
- If your eligible gross trading income exceeds £1,000, you must tell HMRC and choose between deducting the trading allowance or claiming actual allowable expenses.
- Trading income and property income are covered by separate allowances of up to £1,000 each.
What is a trading income allowance?
The trading income allowance is a tax-free allowance of up to £1,000 for individuals earning small amounts from casual work, hobby-based activities, side hustles, or other miscellaneous income.
If your eligible annual gross trading income is £1,000 or less, full relief normally applies automatically, and you do not need to tell HMRC about that income. You must still keep income records and may need to complete a Self Assessment return for another reason.
The allowance applies to qualifying gross income before expenses. It is not limited to activities considered non-professional.
The trading allowance is available to individuals with qualifying income from self-employment, casual services or hiring personal equipment. It does not apply to partnership trading income. You also cannot use it against trade or property income received from:
- a company controlled by you or someone connected to you;
- a partnership involving you or someone connected to you;
- your employer; or
- the employer of your spouse or civil partner.
Even where eligible gross trading income is £1,000 or less, you may need to register for Self Assessment to claim a loss, pay voluntary Class 2 National Insurance or support certain benefit claims.
How does the HMRC trading allowance work?
The trading allowance has applied since the 2017/18 tax year. Individuals with eligible annual gross trading income of £1,000 or less normally receive full relief without registering for Self Assessment solely to report that income.
If your eligible annual gross trading income is £1,000 or less, full relief exempts that income from Income Tax. You normally do not need to report it to HMRC, although you must retain appropriate income records.
If your trading income exceeds £1,000, you can still benefit by claiming ‘partial relief’ of the trading allowance. In this situation, £1,000 is deducted from your gross income, and you pay tax only on the remaining amount. You must complete a Self Assessment return to claim the deduction correctly.
When completing your tax return, you will need to indicate whether you have claimed partial relief from the trading allowance or used actual expenses to reduce your taxable profit.
Do I need to file a tax return when claiming the trading allowance?
Whether you need to complete a Self Assessment tax return depends on your specific circumstances:
- Gross trading income of £1,000 or less: You normally do not need to tell HMRC about qualifying trading income. Exceptions apply if the allowance is unavailable or you need to complete a return for another reason.
- Gross trading income above £1,000: If you are not already registered, you must register for Self Assessment by 5 October following the end of the relevant tax year. You can claim allowable expenses or deduct up to £1,000 as partial relief.
- More than one trade: Add together the gross income from all relevant trades and qualifying miscellaneous income when applying the single £1,000 trading allowance.
- Trading and property income: These are tested separately. You can receive a trading allowance of up to £1,000 and a separate property allowance of up to £1,000.
- Losses, voluntary Class 2 contributions and certain benefits: You must complete a return if you want to claim a trading loss, pay voluntary Class 2 contributions, claim Tax-Free Childcare based on self-employment income or support a Maternity Allowance claim.
Register for HMRC’s Government Gateway to file returns, track tax payments, and access your tax records online to manage your self-assessment.
Do you still pay Class 2 National Insurance under the allowance?
For 2026/27, self-employed people with profits of £7,105 or more are treated as having paid Class 2 National Insurance, protecting their National Insurance record without requiring a Class 2 payment. If profits are below £7,105, no Class 2 contribution is credited automatically, but eligible individuals can pay voluntary Class 2 contributions at £3.65 a week.
Using the trading allowance does not itself determine National Insurance liability. National Insurance thresholds are based on self-employed profits, and you may need to register for Self Assessment if you want to pay voluntary Class 2 contributions.
What does gross trading income mean?
For the self-employed, gross trading income is the total revenue generated from business activities, including trading, casual labour, or miscellaneous earnings, before deducting any expenses or costs related to earning that income.
- If your eligible annual gross trading income is £1,000 or less, full relief normally applies.
- If your gross income exceeds £1,000, you can either:
- Claim business expenses to offset your taxable income.
- Claim the trading allowance to reduce your taxable profit by £1,000.
How much can a self-employed person earn before paying Income Tax?
For 2026/27, the standard Personal Allowance is £12,570. This is the amount of total taxable income an individual can normally receive before paying Income Tax, rather than a separate £12,570 allowance for each income source. The Personal Allowance may be reduced if your adjusted net income exceeds £100,000.
The trading allowance is separate from the Personal Allowance. It can exempt up to £1,000 of eligible gross trading income or, if your eligible income exceeds £1,000, you can deduct up to £1,000 as partial relief instead of claiming actual expenses. Any remaining taxable trading profit is considered alongside your other taxable income when calculating whether Income Tax is due.
What business expenses can you claim instead of the allowance?
If your business has significant running costs, claiming actual expenses may be more beneficial than using the trading allowance. HMRC allows you to deduct expenses wholly and exclusively for business purposes. You cannot claim both the trading allowance and business expenses in the same tax year.
Expenses you can claim include:
1. Office Costs
Allowable office costs include stationery, business telephone and internet costs, rent, utilities, insurance and repairs. If you use traditional accounting, equipment kept for use in the business is normally claimed through capital allowances. Under cash basis accounting, most equipment is claimed as an allowable expense, although separate rules apply to cars.
When working from home, you can claim the business proportion of eligible household costs or use HMRC’s simplified expenses where applicable.
See Also: Work From Home Tax Relief Clarified
2. Travel Costs
Includes fuel, vehicle insurance, public transport, parking, and hotel stays for business purposes. You cannot claim for commuting, fines, or personal travel. Vehicle purchases may be claimed as capital allowances or simplified mileage, depending on your accounting method.
3. Clothing expenses
HMRC allows you to claim clothing expenses required for work, such as uniforms, protective clothing, and even costumes used by actors.
4. Staff costs
Allowable items include salaries, bonuses, pension contributions, subcontractors, employer NI contributions, and staff benefits.
5. Things you buy to sell (reselling goods)
Includes costs of stock, raw materials, and direct importing charges for items your business buys to sell.
6. Legal and Financial costs
Covers accounting and legal services, including indemnity insurance. However, you cannot claim legal costs for buying property, machinery, or other capital assets.
7. Cost of your business premises
Allowable premises costs include rent, business rates, utilities, property insurance, security, repairs and maintenance. You cannot claim the cost of buying business premises as an allowable expense, although qualifying expenditure on constructing, purchasing or leasing a structure can fall under the structures and buildings allowance.
Alterations made to install or replace equipment are claimed as allowable expenses under cash basis accounting or through capital allowances under traditional accounting.
8. Advertising or marketing
Allowable marketing costs include advertising, mailshots, free samples and website expenses. Client entertainment and hospitality are not allowable business expenses. You can also claim qualifying subscriptions to trade publications and professional organisations related to your business. Political donations, gym memberships and most charitable donations are not allowable expenses.
9. Training courses
Training costs are allowable if they maintain or improve skills you already use in your business or support industry changes. Training for starting a new business or unrelated activities cannot be claimed.
Also related: How much is capital gains tax?
Can you claim the allowance on property income?
Property income is covered by a separate property allowance of up to £1,000, rather than the trading allowance. If your eligible annual gross property income is £1,000 or less, full relief normally applies, and you do not need to tell HMRC about that income.
If gross property income exceeds £1,000, you can deduct the property allowance or eligible property expenses. You cannot claim both against the same property income, and separate restrictions apply to the Rent a Room Scheme, residential finance-cost relief and income from connected parties.
See Also: 2026/27 Tax Brackets UK
Frequently Asked Questions
Can I claim the allowance if I have more than one source of income?
Yes. You receive one trading allowance of up to £1,000 for the combined eligible gross income from all trades, casual services, miscellaneous income covered by the allowance, and income from hiring personal equipment. For example, £800 from content creation and £500 from selling handmade products gives total gross trading income of £1,300. You must tell HMRC about the income and can deduct up to £1,000 as partial relief instead of claiming actual expenses.
What is the correct way to use the trading allowance?
To use the trading allowance correctly, first assess whether claiming actual business expenses would give you a greater tax saving. The trading allowance is capped at £1,000, so if your allowable expenses are higher, it may be better to claim them instead. You cannot use both the allowance and claim expenses at the same time.
Can you use the trading allowance to make a business loss?
You cannot use the trading allowance to create or increase a business loss. Partial relief is limited to the lower of £1,000 and the amount of eligible income, so it can reduce taxable income to zero but not below zero. If your allowable expenses exceed your income and you want to claim the resulting loss, calculate your profit under the normal rules and claim actual expenses instead of the trading allowance.
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