The £1,000 trading allowance: how it works
How the £1,000 trading allowance works: full relief if your gross trading income is £1,000 or less, partial relief above that, who cannot use it, and when you still need to register for Self Assessment.
In one sentence
The trading allowance is a tax exemption of up to £1,000 a year on gross trading income, which gives full relief if your income is £1,000 or less and partial relief, instead of deducting expenses, if it is more.
Quick answer
- It applies to gross income (before expenses) from self-employment, casual services and hiring out personal equipment
- At £1,000 or less you may not have to tell HMRC, but there are cases where you must still register for Self Assessment
- Above £1,000 you choose between deducting the £1,000 allowance and deducting your actual expenses, not both
- You cannot use it on income from a company you or someone connected to you owns or controls, a partnership, or your or your spouse's or civil partner's employer
What is the trading allowance?
The trading allowance gives an individual up to £1,000 a tax year in tax-free trading income. It has applied since 6 April 2017 and covers self-employment, casual services such as babysitting or gardening, and hiring out personal equipment such as power tools. It does not apply to trading income from a partnership.
This guide uses the £1,000 figure for 2026/27. Rules can change, so check the current GOV.UK trading allowance guidance before relying on it.
Gross trading income is the total income before expenses or allowances are taken off, whether you use cash basis or traditional accounting. Start with that total, rather than the money left after paying your costs.
There is also a separate £1,000 property allowance if you have property income as well; see GOV.UK's property allowance guidance for the rules.
How does full relief work at £1,000 or less?
If annual gross trading income from one or more trades totals £1,000 or less, full relief may mean you do not have to tell HMRC about it. You must still keep income records and check the registration exceptions below.
For illustration, gross income of £900 with expenses of £300 falls within full relief. In most cases there is nothing to declare, but the exceptions still need checking. The test uses the £900 gross income, before deducting the £300 costs.
For the wider filing question, use our Self Assessment checker or read who needs to file a return.
When must you still register or declare income?
Even with trading income of £1,000 or less, you must register for Self Assessment and declare your income if:
- You have made a loss and want to claim loss relief.
- You want to pay voluntary Class 2 National Insurance to help qualify for some benefits.
- You want to claim Tax-Free Childcare based on self-employment income.
- You want to claim Maternity Allowance based on self-employment.
You can still use the allowance where applicable, but must complete a return. Above £1,000 in gross trading income, register for Self Assessment by 5 October in the following tax year. See our registration guide and GOV.UK's registration service.
GOV.UK distinguishes other income: for other gross income over £1,000 and up to £2,500, contact HMRC; above £2,500, register for Self Assessment.
If you already complete a return, you can use the allowance by deducting it from gross trading income on the return. If you think you no longer need to file, ask HMRC to stop sending returns. If you are outside Self Assessment and have already paid tax through your PAYE tax code on casual services income, you may be due a refund: contact HMRC as directed in the allowances guidance.
How does partial relief work above £1,000?
Above £1,000 of gross trading income, you can deduct the trading allowance instead of actual expenses or other allowances. You can deduct up to £1,000, but never more than your income. You cannot deduct other expenses or allowances as well.
Compare the two choices before claiming. If actual expenses exceed £1,000, claiming expenses may be better. These illustrations show the comparison only: they assume no other allowance interactions, ignore tax rates and National Insurance, and do not state a result for you.
| Gross income | Actual expenses | Profit using allowance | Profit using expenses | Lower profit in this illustration |
|---|---|---|---|---|
| £1,800 | £600 | £1,800 - £1,000 = £800 | £1,800 - £600 = £1,200 | Allowance |
| £1,800 | £1,300 | £1,800 - £1,000 = £800 | £1,800 - £1,300 = £500 | Actual expenses |
Our sole trader allowable expenses guide covers the expense rules. For vehicle costs, see the self-employed mileage allowance guide.
Who cannot use the trading allowance?
You cannot use the allowance if you receive any trading or property income from:
- A company you or someone connected to you owns or controls.
- A partnership where you or someone connected to you is a partner.
- Your employer, or your spouse's or civil partner's employer.
Trading income from a partnership is outside the trading allowance in any event. Check the source of the income as well as its amount.
What records must you keep?
Keep a record of income even when full relief means you do not need to tell HMRC. Evidence can include invoices, an income spreadsheet, receipts, emails confirming income, payer statements, bank statements, pay-in records or a diary showing income per customer.
Records must be accurate, complete and readable, and kept for the required period. HMRC can charge a penalty if they are not. Our Self Assessment documents checklist helps you organise the information for a return.
Does the allowance affect other calculations?
If you deduct the trading allowance rather than actual expenses, income is reduced by the allowance for tax credits, the high income child benefit charge, student loan repayments and married couples allowances. Income for Universal Credit purposes is not affected by these allowances.
RR Accountants is not HMRC and cannot decide eligibility on your behalf. Check GOV.UK's allowance rules for your circumstances.
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Book a call →Frequently asked questions
What is the trading allowance?
The trading allowance is a tax exemption of up to £1,000 each tax year for an individual's income from self-employment, casual services and hiring out personal equipment. It does not cover trading income from a partnership.
Do I need to tell HMRC if I earn under £1,000?
If total annual gross trading income is £1,000 or less, you may not have to tell HMRC, but you must keep records. You must register and declare the income if you want to claim loss relief, pay voluntary Class 2 National Insurance, or claim Tax-Free Childcare or Maternity Allowance based on self-employment income.
Can I use the trading allowance and claim expenses?
No. If you claim the trading allowance, you cannot deduct any other expenses or allowances. Compare the allowance with actual expenses; claiming expenses may be better if they exceed £1,000.
What if my trading income is over £1,000?
If gross trading income exceeds £1,000, register for Self Assessment by 5 October in the following tax year. You can choose partial relief by deducting up to £1,000 instead of actual expenses or other allowances, subject to eligibility.
Who cannot use the trading allowance?
You cannot use it if you receive any trading or property income from a company you or someone connected to you owns or controls, a partnership where you or someone connected to you is a partner, or your employer or your spouse's or civil partner's employer. Trading income from a partnership is also excluded.
Key terms
- Gross trading income
- Total trading income before any allowances or expenses are taken off, whether you use cash basis or traditional accounting.
- Partial relief
- Deducting up to £1,000 of trading allowance, limited to your income, instead of expenses or other allowances when gross trading income exceeds £1,000.