UK Trading Allowance Optimiser 2026/27

What is the £1,000 trading allowance?

The trading allowance is a £1,000 tax exemption in UK Income Tax law since 6 April 2017 (ITTOIA 2005 Part 6A, Chapter 1, sections 783A-783AR). Every individual can set it against gross income from self-employment, casual services (such as babysitting or gardening) and hiring out personal equipment each tax year. If that gross income is £1,000 or less, you do not normally need to tell HMRC about it. The allowance has been £1,000 since it was introduced.

A separate £1,000 property allowance sits in parallel for property income. The two are independent - the same individual can claim both in the same tax year, giving up to £2,000 of tax-free income provided each source qualifies. This calculator covers trading income only.

You cannot use the trading allowance in a tax year if you have trading income from your employer (or your spouse’s or civil partner’s employer), or from a partnership or company that you or someone connected to you controls.

When does the allowance apply?

It applies to income from a trade, and to casual services. Examples:

• Buying or making goods to sell - on eBay, Vinted, Etsy, Depop or a market stall, where you buy or make items to sell at a profit.
• Gig and freelance work - ad-hoc consultancy, copywriting, design, tutoring.
• Content monetisation - YouTube ad revenue, Twitch subs, Patreon pledges, Substack subscriptions, sponsorship deals.
• Service work - dog-walking, pet-sitting, gardening, cleaning, handyman work, mobile beauty.
• Skilled side hustles - music lessons, fitness coaching, photography, baking-to-order.

Selling your own unwanted personal items, such as the contents of a loft, is not usually trading, so it is not trading income at all (gov.uk: selling on a digital platform).

The allowance does NOT cover salary, pension income, savings interest, dividends, capital gains or property income (use the property allowance).

The three routes

When you have trading income, there are three possible treatments. The calculator picks the one with the lower taxable profit.

Route A: Full relief (gross income of £1,000 or less)

If your total gross trading income for the tax year is £1,000 or less, it is not taxed and you do not normally need to register for Self Assessment for it. You still need to keep records of it.

Worked example: you sell £600 of homemade candles on Etsy and earn £300 dog-walking for neighbours. Total gross trading income: £900. No tax, and no Self Assessment registration needed for this income.

Route B: Partial relief - claim the allowance (income over £1,000)

When gross income is over £1,000 and your actual allowable expenses are below £1,000, claiming the allowance INSTEAD of deducting actual expenses gives the lower profit:

Taxable profit = gross trading income - £1,000

You cannot also deduct any real expenses on top - it is one route or the other, not both.

Worked example: £3,000 of Etsy sales, £200 of postage and packaging expenses.

• Route B (allowance): taxable profit = £3,000 - £1,000 = £2,000
• Route C (actuals): taxable profit = £3,000 - £200 = £2,800

The allowance route saves £800 of taxable profit: £160 of Income Tax at the basic rate (20%), £320 at the higher rate (40%), £360 at the additional rate (45%).

Route C: Actual expenses - ignore the allowance

When gross income is over £1,000 and your actual allowable expenses are over £1,000, deducting the real costs gives a lower taxable profit:

Taxable profit = gross trading income - actual allowable expenses

This is the standard sole-trader treatment: you report income and expenses on the self-employment pages of your Self Assessment return.

Worked example: £8,000 of freelance income, £3,500 of business expenses.

• Route C (actuals): taxable profit = £8,000 - £3,500 = £4,500
• Route B (allowance): taxable profit = £8,000 - £1,000 = £7,000

Actuals save £2,500 of taxable profit, worth £500 of tax at the basic rate.

The break-even point

Claim the allowance when actual expenses are below £1,000, and actual expenses when they are above it. At exactly £1,000 both routes give the same taxable profit; the calculator then shows the allowance route, which needs no expense breakdown.

The Self Assessment trigger

The £1,000 test for registering for Self Assessment is on gross income, not profit. If your gross trading income is over £1,000, you must register even if you claim the allowance and your taxable profit is small.

Deadlines for 2026/27 income:

• Registration deadline: 5 October 2027
• Online return filing deadline: 31 January 2028
• Balancing payment due: 31 January 2028

A penalty for registering late (failure to notify) is a percentage of the tax left unpaid because of the failure, up to 100% for a deliberate and concealed failure (Finance Act 2008 Sch 41 para 6). A late tax return is penalised separately, starting at £100.

Interaction with PAYE salary

The trading allowance does not shelter salary, pension, dividends or savings interest. But the Income Tax rate on your trading profit depends on your other income, because the profit sits on top of it. With £2,000 of profit after the allowance:

• £30,000 PAYE: £400 Income Tax (20%).
• £60,000 PAYE: £800 (40%).
• £110,000 PAYE: £1,200 (60%), because the profit falls inside the £100,000-£125,140 Personal Allowance taper.
• £150,000 PAYE: £900 (45%).

Class 4 National Insurance is charged on the trading profit itself, at 6% between £12,570 and £50,270 and 2% above, so it does not apply to profit below £12,570 whatever your salary. See the self-employed calculator for the full profit-after-NI view.

Common scenarios

The casual seller

Anna sells unused clothes on Vinted and Depop in 2026/27, earning £800 across the year. Selling your own unwanted items is not usually trading, so this is unlikely to be taxable at all. If it were trading, £800 is under £1,000, so Route A would apply: no tax and no Self Assessment for it. The side hustle tax guide covers how HMRC tells the two apart.

The freelance side-hustler

Ben works full-time PAYE at £45,000 and designs logos on the side, earning £4,500 with £300 of software subscriptions. Gross trading income is over £1,000, so he must register for Self Assessment.

• Route B: profit = £4,500 - £1,000 = £3,500
• Route C: profit = £4,500 - £300 = £4,200

Ben claims the allowance. £45,000 plus £3,500 stays inside the basic-rate band, so the profit costs £700 of Income Tax (20%), and the £700 lower profit saves him £140.

The serious side business

Clare runs a weekend craft stall earning £15,000 a year with £4,200 of actual expenses (van fuel, fabric, market stall fees, accountant).

• Route B: profit = £15,000 - £1,000 = £14,000
• Route C: profit = £15,000 - £4,200 = £10,800

Actuals win by £3,200. With no other income, the £10,800 profit is below the £12,570 Personal Allowance, so the Income Tax is £0, and it is below the £12,570 Lower Profits Limit, so there is no Class 4 NI. She still files a return.

The 60% trap straddler

Daniel earns £105,000 PAYE and runs a £10,000 consulting side hustle with £600 of expenses. Gross trading income is over £1,000, so he must file.

• Route B: profit = £10,000 - £1,000 = £9,000
• Route C: profit = £10,000 - £600 = £9,400

The allowance wins by £400. Daniel is inside the £100,000-£125,140 Personal Allowance taper, where every £2 of extra income removes £1 of allowance, so the £9,000 profit costs £5,400 in Income Tax (60%), not £3,600 at 40%. The £400 saving from the allowance is worth £240.

Spouses and the household

The trading allowance is per individual, not per household. Spouses or civil partners EACH get their own £1,000 trading allowance and their own £1,000 property allowance, so up to £4,000 a year between them where each has qualifying income.

The allowances cannot be transferred between spouses (unlike the £1,260 Marriage Allowance, which moves part of the Personal Allowance and only helps couples where one has income below the Personal Allowance and the other is a basic-rate taxpayer). Each spouse makes their own choice of allowance or actual expenses.

What to keep, even if you claim the allowance

You must keep records for at least 5 years after the 31 January submission deadline of the tax year (gov.uk: how long to keep your records). Keep:

• A simple income log - date, amount, source, platform.
• Bank statements showing the trading receipts. A separate business account is not compulsory for a sole trader.
• Receipts for expenses even if you do not deduct them this year - you may switch to actual expenses in a later year.
• Platform statements (sales summaries, payout reports). Since 1 January 2024, digital platforms have had to collect seller details and report them to HMRC, unless a seller makes fewer than 30 sales of goods and receives less than 2,000 euros in a calendar year (gov.uk).

Loss-year tactics

The allowance can only reduce taxable profit to zero - it cannot create a loss. If your real expenses exceed your income (a genuine trading loss), the actual-expenses route gives a loss that may be:

• Set against your other income of the same or the previous tax year (sideways loss relief). The trade must be carried on commercially with a view to profit, and relief against other income is capped at the higher of £50,000 or 25% of adjusted total income (ITA 2007 s.24A).
• Carried forward against future profits of the same trade.

What’s NOT in this calculator

Several adjacent reliefs sit beside the trading allowance and are covered by other tools:

• Self-Employed Calculator - Class 4 NI on top of the Income Tax computed here.
• Property Allowance - the parallel £1,000 for property income. Rent a Room relief (£7,500 a year, or £3,750 if shared) is a separate scheme, and the property allowance cannot be used on income from letting a room under it.
• Side Hustle Tax Guide - the badges-of-trade test, platform reporting, and when a hobby becomes a trade.
• Sole Trader vs Limited Company - when incorporating may be worth comparing.

See our methodology for sources and how the figures are calculated.

Related guides

• Self Assessment Step by Step - how to register, file and pay once your gross trading income is over £1,000.
• Side Hustle Tax Guide - badges of trade, hobby-vs-trade test, platform reporting.
• PAYE vs Self Assessment - what changes on your tax record once you have both salary and side-hustle income.
• 60% Tax Trap - why side-hustle profits cost more in the £100,000-£125,140 band.