Definition
The trading allowance is a £1,000 tax-free allowance each tax year for income from self-employment, casual work and side hustles, such as occasional freelance jobs or selling items you make. If your gross trading income is £1,000 or less, you normally do not need to tell HMRC. If it is more, you can deduct £1,000 instead of your actual expenses when working out your taxable profit.
Allowance or actual expenses?
Priya earns £3,000 from weekend photography and has £400 of costs. Deducting the £1,000 allowance gives a taxable profit of £2,000, lower than the £2,600 left by claiming actual costs. If her costs were £1,500, claiming expenses would be the better choice.
“Gross” means income before anything is deducted. A separate £1,000 property income allowance applies to property income, and you can use both.
When it cannot be used
- Income from a company you, or someone connected to you, owns or controls
- Income from a partnership where you or a connected person is a partner
- Income from your employer, or your spouse’s or civil partner’s employer
Even below £1,000, you must register for Self Assessment for some purposes, such as claiming loss relief or paying voluntary Class 2 National Insurance.
Read more on the £1,000 trading allowance. Once over the limit, SmartFiling’s Self Assessment tax return service can file your return.
Related questions
- Do I need to file a Self Assessment tax return? Yes, if you were a sole trader earning more than £1,000 before expenses, even if you then use the allowance.
- Do I pay National Insurance on side hustle income? Only if self-employed profits exceed £12,570 for 2026/27, when Class 4 starts.
Related terms
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Self Assessment
Self Assessment is the system HM Revenue and Customs (HMRC) uses to collect Income Tax that is not taken automatically, for example through PAYE.
Read definition -
Property income allowance
The property income allowance (often called the property allowance) is a £1,000 tax-free allowance each tax year for individuals with income from land or property…
Read definition -
Class 4 National Insurance
Class 4 National Insurance is paid by self-employed people on their taxable profits and collected by HMRC through Self Assessment, alongside Income Tax.
Read definition
