A simple tax break for side hustles and casual income — earn up to £1,000 a year and HMRC does not want to hear about it.
The rise of the side hustle — selling crafts, freelancing at weekends, renting out a power tool — created a flood of small, awkward amounts of income that the tax system was never designed for. The Trading Allowance is the government's pragmatic fix: a flat £1,000 that lets most casual earners stay out of the tax system entirely.
The allowance applies to your gross trading income — the money in, before any expenses come out. There are two ways it helps:
The catch is that it is an either/or choice. You deduct the £1,000 allowance or your real expenses, never both.
Sam sells handmade candles online as a side venture. In 2025/26 his gross sales are £2,400. His actual allowable expenses — wax, wicks, packaging, postage and a share of his electricity — come to £700.
Because his income exceeds £1,000, Sam must register for Self Assessment. He then has a choice:
The Trading Allowance leaves him with £300 less taxable profit, so it is the better option — and it spares him the paperwork of itemising costs. As a basic-rate taxpayer that £300 saves him £60 in income tax. Had his expenses instead been £1,500, claiming actual costs would have won. Run both scenarios in the sole trader calculator.
Earning over £1,000 means you must register for Self Assessment by 5 October following the end of the tax year. Even comfortably within the £1,000 limit, you may still need to report income if you are already in Self Assessment for another reason, if the income comes from a person connected to your employer, or if you want to register to build a National Insurance record or pay voluntary contributions.
The Trading Allowance is the tax system quietly admitting that chasing £40 of tax on a weekend hobby costs more than it collects — so it simply lets the small stuff go.
The two are siblings, not the same thing. The £1,000 Property Allowance works identically but applies to rental income, and you get both allowances if you have both types of income — £1,000 tax-free trading and a separate £1,000 tax-free property income. Neither can be used to create or increase a loss, and you cannot use the Trading Allowance against income from a partnership you are a member of. Under Making Tax Digital from April 2026, the £1,000 threshold still keeps the smallest traders out of quarterly reporting, since the digital regime only bites well above that level.
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