Trading allowance
The trading allowance exempts the first £1,000 of gross trading or casual income each tax year. Below it, there is nothing to report; above it, you can deduct the allowance instead of your actual expenses.
How it works
If your total gross income from self-employment, casual work or side projects is £1,000 or less in a tax year, it is exempt and you generally do not need to register for self assessment for it. That covers most small side income: occasional freelancing, selling handmade goods, one-off consultancy.
Above £1,000 you have a choice. Either deduct your actual allowable expenses in the normal way, or deduct the flat £1,000 allowance instead. The allowance wins where real costs are low — writing, tutoring, advisory work — and loses where costs are substantial.
The allowance is per person, not per business, so two side businesses share one allowance. It cannot be used against income from a company you control, or from a partnership you are a member of, which rules it out for most director side income routed through their own company. A separate property allowance of £1,000 works the same way for rental income.
You cannot claim the allowance and expenses on the same income, and using it means you cannot create or use a loss from that trade.
Who this affects
- Employees and directors with small side income outside their company
- Online sellers and creators testing whether they need to register
- Low-cost service businesses where the allowance beats real expenses
- Anyone with both a small trade and small rental income, each with its own allowance
Common mistakes
- Applying the allowance to income from your own company, which is excluded
- Claiming both the allowance and expenses on the same income
- Measuring against profit rather than gross income when testing the £1,000 limit
Frequently asked questions
How much is the trading allowance?
£1,000 of gross trading income per tax year, per person.
Do I need to tell HMRC about income under the allowance?
Usually not, provided gross income from all trading sources is £1,000 or less and you are not already required to file for another reason.
Can I use it against income from my own limited company?
No. Income from a company you control, or from a partnership you belong to, is excluded.
Is it better than claiming expenses?
Only where your actual allowable expenses are less than £1,000. You cannot claim both.
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Reviewed by Waqas Sagar ACA FCCA FMAAT · Last reviewed 13 September 2026 · Figures for 2026/27 · About our practice
Official sources
- Tax-free allowances on property and trading income
- Check if you need to send a Self Assessment tax return
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