If you earn money on the side — selling things online, doing a bit of gardening, babysitting for neighbours, or renting out equipment you own — the trading allowance is worth knowing about. It lets individuals with small amounts of trading income receive up to £1,000 of that income completely tax-free, without needing to track or claim individual expenses.

Knowing how to claim the trading allowance is straightforward once you understand the rules. The part that trips people up is deciding whether to claim it. Because the allowance replaces your actual expenses rather than sitting on top of them, using it can occasionally leave you worse off. We’ll cover both sides so you can make the right call for your situation.

The trading allowance is a £1,000 annual tax exemption for individuals who receive income from trading activities. It has been available since 6 April 2017 and covers income from self-employment, casual services such as gardening or babysitting, and hiring out personal equipment you own.

If your gross trading income in a tax year is £1,000 or less, you generally don’t need to report it to HMRC or file a Self Assessment return on account of that income. Your taxable profit is treated as nil. That’s the full relief — the income simply doesn’t count.

If your gross trading income is above £1,000, you can still claim the allowance as a deduction. Instead of totting up every business expense and deducting the actual figure, you deduct £1,000 flat. Whatever’s left is your taxable profit. HMRC calls this partial relief.

One thing the allowance doesn’t cover: income from a partnership. If you’re in a trading partnership and receiving your share of profits that way, the trading allowance doesn’t apply to that income. It also can’t be used for income received from a connected party — a family member’s business, for instance — so watch out for that if the income source isn’t arm’s-length.

If your gross trading income is below £1,000 and you don’t otherwise need to file a Self Assessment return, there’s nothing to do. You don’t register, you don’t file, you just keep a record of what you earned in case HMRC ever asks.

If you do file a Self Assessment return — because you have other income that requires it, or because your trading income exceeds £1,000 — you claim the allowance through the self-employment pages.

• On the short self-employment pages (SA103S), there’s a box to enter the trading income allowance. Tick the relevant box and enter your trading income. HMRC does the rest.
• On the full self-employment pages (SA103F), the process is the same — enter your trading income and indicate you’re using the allowance rather than claiming actual expenses.

The key point: once you claim the allowance, you cannot also claim any actual business expenses for that same trade. It’s one or the other. You don’t get the allowance on top of expenses — it replaces them entirely.

If you’re not sure which self-employment pages apply to you, or whether the allowance is the right choice for your return, that’s a good prompt to speak to an accountant before you file rather than after.

This is where most people go wrong. The trading allowance is genuinely useful in specific situations — and actively unhelpful in others.

When to use it

If your actual business expenses are less than £1,000, the trading allowance will reduce your taxable profit more than claiming those expenses would. A simple example: you earn £3,500 gardening and your only costs are £200 in tools. Claiming actual expenses gives you £3,300 of taxable profit. Claiming the allowance gives you £2,500. Use the allowance.

It’s also useful when your record-keeping is patchy and you’d struggle to evidence your actual expenses. The allowance requires no receipts, no mileage logs, no record of individual costs — you just claim the flat £1,000.

When to leave it alone

If your actual expenses exceed £1,000, the trading allowance will give you a higher taxable profit than simply deducting what you spent. That costs you more tax, not less.

It also applies across all your trading income combined. So if you have a main self-employment with significant expenses alongside a small side income, claiming the trading allowance could block you from deducting expenses on the larger trade — which would be an expensive mistake. Capital allowances fall into the same trap: if you’ve bought equipment or a vehicle for the business, you can’t claim capital allowances and the trading allowance at the same time.

In March 2025, the government announced plans to raise the Self Assessment reporting threshold for trading income from £1,000 to £3,000 gross. The change hasn’t taken effect yet as of September 2026 — no firm implementation date has been set — but it’s expected within this parliament.

When it does land, up to 300,000 taxpayers who currently file a Self Assessment return purely because their side income tips over £1,000 would no longer have to file one. For someone who runs a small eBay side hustle, walks dogs at the weekend, or earns a modest amount from content creation, this would remove a genuinely irritating admin obligation.

That said, there are reasons some people in that group might still choose to file even after the threshold rises. If you want to pay voluntary Class 2 National Insurance contributions to protect your State Pension entitlement, filing a return is the mechanism for doing that. The same applies if you want to claim a trading loss against other income, or if you’re trying to establish income for maternity allowance or tax-free childcare purposes.

We’ll keep clients updated as this change moves through parliament. If you’re currently on the edge of the £1,000 threshold and wondering whether it affects you, it’s worth a conversation.