Trading Allowance 2026/27 — £1,000 Limit & Rules

The trading allowance can provide full relief on up to £1,000 of gross trading income in 2026/27. If your gross trading income is £1,000 or less, you may not need to tell HMRC, but exceptions apply — including cases where you must file for another reason, cannot use the allowance, or want to claim certain reliefs or benefits. If gross trading income exceeds £1,000, you normally register for Self Assessment; the allowance can then be used instead of actual expenses. Model the choice with the Trading Allowance Calculator→.

This guide covers what counts as trading income, when registration is triggered, how to opt out, and the separate property allowance you must not confuse it with.

What Counts as Trading Income

The allowance applies to trading income from self-employment — buying to resell, providing services, making and selling goods. It does not cover employment, dividends, savings interest, or property income, which has its own separate £1,000 property income allowance. Selling your own personal possessions, such as a bike you owned for years, is not trading at all — it is a disposal of a personal asset and usually outside tax entirely. The test is whether you are trading with a profit motive: buying vintage furniture to restore and resell is trading; clearing out your loft is not.

How the Allowance Works

Above £1,000 you choose between the £1,000 deduction and your actual allowable expenses, and the right answer is whichever produces the lower taxable profit. With £2,000 of income and £400 of expenses, the allowance gives a £1,000 profit against £1,600 from itemising — allowance wins. With £2,000 of income and £1,400 of expenses, actual costs give £600 against the allowance's £1,000 — itemise instead. Claim the allowance using the trading-allowance method on the return; do not also deduct actual expenses or other allowances for that same income. Follow the current return instructions rather than assuming the allowance is applied automatically.

Registering and Filing

If gross income exceeds £1,000, register as self-employed on GOV.UK by 5 October following the tax year and file online by 31 January. The threshold is tested on gross income, not profit, so a low-margin reselling business can cross it while making very little. Income tax applies to profit after the allowance or expenses. For 2026/27, Class 4 National Insurance is 6% on profits above £12,570 up to £50,270 and 2% above £50,270; a £2,000 profit does not create Class 4 NI. Class 2 contributions are treated as paid once profits reach £7,105, while voluntary Class 2 is available below that threshold.

Real Examples

Example 1 — Casual eBay seller: Mina sells clothes, electronics and collectables she no longer uses, grossing £800 with £75 of fees and postage. If these are genuinely personal possessions rather than goods bought for resale, the activity may not be trading at all. If it is trading income, the £1,000 allowance may provide full relief, subject to HMRC exceptions and any separate filing duty.

Example 2 — Freelance writer: Tom earns £2,000 writing articles, with £400 of laptop and software costs. The allowance gives £1,000 of taxable profit (better than £1,600), taxed at his marginal rate alongside his day job. Because gross income exceeds £1,000 he registers and files, but the allowance still halves the profit.

Example 3 — Reseller with high costs: Priya buys £1,600 of stock and sells it for £2,200. Actual expenses (£1,600) beat the allowance (£1,000), leaving £600 of profit instead of £1,200 — the allowance is only ever the right answer when your real costs are below £1,000.

Multiple Activities and the Property Allowance

The £1,000 limit applies to the combined total of all your self-employment income — £700 from Etsy plus £500 from dog walking is £1,200, so you are over the threshold even though neither activity alone reaches it. A separate property income allowance of £1,000 can apply to qualifying property income, but it cannot be used for income from letting a room in your own home under the Rent-a-Room Scheme. Rent-a-Room is an alternative method for qualifying furnished accommodation in your own or main home (£7,500, or £3,750 if the income is shared with another recipient); do not stack both against the same room income. Separate trading and property streams may use separate allowances only where each qualifies and the connected-company, partnership and employer restrictions do not apply.

Self Assessment Mechanics

The allowance can be claimed on a Self Assessment return when eligible. You cannot also deduct actual expenses or other allowances for the same income. It does not apply to trading income from a partnership, and restrictions can also apply to income involving a company, partnership or employer connected with you. Claiming it does not prevent you registering for Self Assessment for another reason. The allowance cannot create a loss: with £1,200 of eligible income, the maximum deduction is £1,000 and the profit is £200.

Interaction with Employment and PAYE

If you have a full-time job and a side hustle, your salary is taxed through PAYE and your trading profit is assessed separately after the allowance or expenses. A side hustle profit of £1,200 with the £1,000 allowance adds £200 to taxable income, taxed at the marginal rate. Whether HMRC collects tax through PAYE coding or requires Self Assessment depends on your wider circumstances; do not infer it from a £3,000 profit threshold. Payments on account may also apply where the Self Assessment conditions are met.

Frequently Asked Questions

Evidence and decision checks

A reliable trading allowance 2026 27 review starts by fixing the tax year and the date on which the relevant event happened. Record the person's or business's status, the income or transaction category, the amount before tax, tax already withheld, and any election or claim being relied on. Do not combine a headline figure with a final liability: the result can change when another income source, a payment date, an ownership interest or a qualifying condition is added.

Keep the source documents behind every important input. Depending on the subject, that may include payslips, invoices, bank statements, contracts, provider statements, travel records, HMRC notices, payroll submissions, valuations or correspondence. Where an amount is apportioned, write down the method and retain the underlying total. If a correction is made, preserve the original figure and explain the reason, date and evidence for the replacement.

Before relying on the result, check the current official guidance for the same tax year and jurisdiction. Distinguish enacted law from a consultation, draft measure, announcement or future proposal, and record the effective date. Reconcile the final estimate to the relevant return, payroll record or HMRC account. A calculator or explanatory guide can support a decision, but it cannot replace the eligibility test or the official filing and payment process.

Evidence and decision checks

A reliable trading allowance 2026 27 review starts by fixing the tax year and the date on which the relevant event happened. Record the person's or business's status, the income or transaction category, the amount before tax, tax already withheld, and any election or claim being relied on. Do not combine a headline figure with a final liability: the result can change when another income source, a payment date, an ownership interest or a qualifying condition is added.

Keep the source documents behind every important input. Depending on the subject, that may include payslips, invoices, bank statements, contracts, provider statements, travel records, HMRC notices, payroll submissions, valuations or correspondence. Where an amount is apportioned, write down the method and retain the underlying total. If a correction is made, preserve the original figure and explain the reason, date and evidence for the replacement.

Before relying on the result, check the current official guidance for the same tax year and jurisdiction. Distinguish enacted law from a consultation, draft measure, announcement or future proposal, and record the effective date. Reconcile the final estimate to the relevant return, payroll record or HMRC account. A calculator or explanatory guide can support a decision, but it cannot replace the eligibility test or the official filing and payment process.

Run your own numbers with the Trading Allowance Calculator→, then read the Sole Trader Expenses guide for itemising and the Side Hustle Tax guide for registration details.

Official sources

• GOV.UK — Tax-free allowances on property and trading income
• GOV.UK — Self-employed National Insurance rates
• GOV.UK — National Insurance rates and allowances
• GOV.UK — Who must send a tax return
• GOV.UK — Expenses if you’re self-employed
• GOV.UK — Rent a Room Scheme 2026