What is the £1,000 trading allowance?

The trading allowance is a £1,000 per-individual annual tax exemption introduced in April 2017 (ITTOIA 2005 Part 6A). It applies to gross trading or miscellaneous income - eBay sales, Etsy crafts, freelance gigs, content creator earnings, casual handyman work, dog-walking, tuition, and so on. If your gross trading income for the tax year is £1,000 or less you owe no tax and do not need to register for Self Assessment. The allowance is statutory and frozen at £1,000; it has not been uprated since introduction.

When do I need to register for Self Assessment?

You must register for Self Assessment if your gross trading income exceeds £1,000 in a tax year - even if you intend to claim the trading allowance and your taxable profit is zero or low. The £1,000 trigger is on gross receipts, not net profit. Registration deadline is 5 October following the tax year end (so 5 October 2027 for 2026/27 income). HMRC can charge penalties for late registration and the £100 fixed late-filing penalty stacks separately.

Can I claim the trading allowance AND deduct expenses?

No - the two are mutually exclusive. If you claim the £1,000 trading allowance, your taxable profit is "gross income minus £1,000" and you cannot also deduct any actual expenses. If you claim actual expenses, you ignore the allowance and your taxable profit is "gross income minus allowable expenses". For each separate trade (each ITTOIA 2005 sec. 783A trade) you pick one route per tax year. The decision rule is simple: claim the allowance when your real expenses are below £1,000, claim actual expenses when they are above £1,000.

How does the trading allowance interact with PAYE salary?

The £1,000 allowance applies to trading / miscellaneous income only - it does not reduce your PAYE salary, pension income or dividend income. If you earn £45,000 PAYE and have £900 of eBay-trading income, the £900 is fully covered by the allowance and you owe no tax on it (and do not need to file SA). If the same person had £3,000 of trading income with £200 of expenses, taxable profit under the allowance route would be £2,000 - taxed at 20% on top of the PAYE band positioning (so £400 of Income Tax). Class 2 / Class 4 NI may also apply once profits exceed the small-profits and lower-profits thresholds.

Is the £1,000 property allowance separate from the £1,000 trading allowance?

Yes - they are two separate £1,000 allowances. The trading allowance covers trading / miscellaneous receipts; the property allowance covers UK property rental income. The same individual can claim both in the same tax year (one £1,000 against trading, one £1,000 against property), giving up to £2,000 of tax-free income provided each source qualifies for its respective allowance. Different routes (allowance vs actual expenses) can be chosen for each. Rent-a-room is a third, separate scheme worth £7,500/year.

Does each spouse get their own £1,000 trading allowance?

Yes - the trading allowance is per-individual, not per-household. A married couple or civil partners each have their own £1,000 trading allowance and own £1,000 property allowance, giving a combined household figure of up to £4,000 of tax-free side-hustle and rental income per year. The allowances are not transferable between spouses (unlike the £1,260 Marriage Allowance which works on Personal Allowance).

What counts as trading income for the allowance?

Trading income covers any activity carried on for profit on a regular basis: online selling (eBay, Vinted, Etsy, Depop), freelance and gig work, content monetisation (YouTube, TikTok, Patreon, Substack), tutoring, dog-walking, gardening, casual labour, market stalls, paid hobbies. Miscellaneous income (one-off honoraria, casual writing fees, prize money for skill-based competitions) is also covered. NOT covered: PAYE salary, pension income, savings interest, dividend income, capital gains, rental income (use property allowance instead), employment-related expenses (covered by separate flat-rate schemes).

What happens if I claim the allowance but my profit was higher than my income?

The allowance route only reduces taxable profit to zero - it cannot create a loss. If you have £900 of allowable expenses against £2,000 of gross income, claiming the allowance gives you a £1,000 taxable profit. Claiming actual expenses gives a £1,100 taxable profit. Allowance wins. If your expenses were £2,500 against £2,000 income, the actual-expenses route gives a £500 loss (carried forward against future trading income); the allowance route gives a £1,000 taxable profit. In a loss year actual expenses always wins because losses are valuable tax assets.

£20,000 Side Hustle: UK Trading Allowance Tax 2026/27

£20,000 of gross trading income exceeds the £1,000 trading allowance, so Self Assessment registration is required by 5 October following the tax year end. At a typical £45k PAYE with £200 of expenses, the allowance route gives a taxable profit of £19,000 and £6,546 of additional Income Tax. Verified against gov.uk: tax-free allowances and HMRC BIM86000.

Recommended route

Use allowance

Taxable profit £19,000 at 40% marginal

Income Tax (£45k PAYE)

£6,546

Class 4 NI not included - see self-employed calc

Self Assessment

Required

How the decision works for £20,000

Gross trading income £20,000 exceeds £1,000 - Self Assessment registration is required regardless of which expense route you pick.
Compare two taxable profit figures: gross minus £1,000 (allowance route) vs gross minus actual expenses (actuals route).
If actual expenses are under £1,000, the allowance route gives a lower taxable profit. If over £1,000, the actuals route wins. The break-even is at exactly £1,000 of expenses.
The chosen profit stacks on top of any PAYE / pension / dividend income - so your marginal Income Tax rate depends on your other income, not just on the profit alone.
Class 2 NI may apply if profits exceed the Small Profits Threshold; Class 4 NI at 6% kicks in above the Lower Profits Limit (£12,570 for 2026/27).

All 9 scenarios at £20,000

Recommended route, taxable profit and Income Tax across three expense profiles and three marginal-rate tiers. Adjust the values interactively on the main calculator.

Expenses	Taxpayer	Route	Taxable profit	Income Tax	Saving vs alt
£0 exp.	20%	Allowance	£19,000	£3,800	£1,000
£0 exp.	40%	Allowance	£19,000	£7,600	£1,000
£0 exp.	45%	Allowance	£19,000	£8,550	£1,000
£500 exp.	20%	Allowance	£19,000	£3,800	£500
£500 exp.	40%	Allowance	£19,000	£7,600	£500
£500 exp.	45%	Allowance	£19,000	£8,550	£500
£2k exp.	20%	Actuals	£18,000	£3,600	£1,000
£2k exp.	40%	Actuals	£18,000	£7,200	£1,000
£2k exp.	45%	Actuals	£18,000	£8,100	£1,000

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Related calculators and guides

Trading Allowance Optimiser - tune expenses and PAYE income interactively.
Self-employed calculator - Class 2 + Class 4 NI on top of Income Tax.
Side hustle tax guide - badges-of-trade and DAC7 platform reporting.
Self Assessment step by step - registration, SA103, payment.
60% tax trap - what happens when side-hustle profits push you into the £100k taper.

Frequently asked questions

What is the £1,000 trading allowance?: The trading allowance is a £1,000 per-individual annual tax exemption introduced in April 2017 (ITTOIA 2005 Part 6A). It applies to gross trading or miscellaneous income - eBay sales, Etsy crafts, freelance gigs, content creator earnings, casual handyman work, dog-walking, tuition, and so on. If your gross trading income for the tax year is £1,000 or less you owe no tax and do not need to register for Self Assessment. The allowance is statutory and frozen at £1,000; it has not been uprated since introduction.
When do I need to register for Self Assessment?: You must register for Self Assessment if your gross trading income exceeds £1,000 in a tax year - even if you intend to claim the trading allowance and your taxable profit is zero or low. The £1,000 trigger is on gross receipts, not net profit. Registration deadline is 5 October following the tax year end (so 5 October 2027 for 2026/27 income). HMRC can charge penalties for late registration and the £100 fixed late-filing penalty stacks separately.
Can I claim the trading allowance AND deduct expenses?: No - the two are mutually exclusive. If you claim the £1,000 trading allowance, your taxable profit is "gross income minus £1,000" and you cannot also deduct any actual expenses. If you claim actual expenses, you ignore the allowance and your taxable profit is "gross income minus allowable expenses". For each separate trade (each ITTOIA 2005 sec. 783A trade) you pick one route per tax year. The decision rule is simple: claim the allowance when your real expenses are below £1,000, claim actual expenses when they are above £1,000.
How does the trading allowance interact with PAYE salary?: The £1,000 allowance applies to trading / miscellaneous income only - it does not reduce your PAYE salary, pension income or dividend income. If you earn £45,000 PAYE and have £900 of eBay-trading income, the £900 is fully covered by the allowance and you owe no tax on it (and do not need to file SA). If the same person had £3,000 of trading income with £200 of expenses, taxable profit under the allowance route would be £2,000 - taxed at 20% on top of the PAYE band positioning (so £400 of Income Tax). Class 2 / Class 4 NI may also apply once profits exceed the small-profits and lower-profits thresholds.
Is the £1,000 property allowance separate from the £1,000 trading allowance?: Yes - they are two separate £1,000 allowances. The trading allowance covers trading / miscellaneous receipts; the property allowance covers UK property rental income. The same individual can claim both in the same tax year (one £1,000 against trading, one £1,000 against property), giving up to £2,000 of tax-free income provided each source qualifies for its respective allowance. Different routes (allowance vs actual expenses) can be chosen for each. Rent-a-room is a third, separate scheme worth £7,500/year.
Does each spouse get their own £1,000 trading allowance?: Yes - the trading allowance is per-individual, not per-household. A married couple or civil partners each have their own £1,000 trading allowance and own £1,000 property allowance, giving a combined household figure of up to £4,000 of tax-free side-hustle and rental income per year. The allowances are not transferable between spouses (unlike the £1,260 Marriage Allowance which works on Personal Allowance).
What counts as trading income for the allowance?: Trading income covers any activity carried on for profit on a regular basis: online selling (eBay, Vinted, Etsy, Depop), freelance and gig work, content monetisation (YouTube, TikTok, Patreon, Substack), tutoring, dog-walking, gardening, casual labour, market stalls, paid hobbies. Miscellaneous income (one-off honoraria, casual writing fees, prize money for skill-based competitions) is also covered. NOT covered: PAYE salary, pension income, savings interest, dividend income, capital gains, rental income (use property allowance instead), employment-related expenses (covered by separate flat-rate schemes).
What happens if I claim the allowance but my profit was higher than my income?: The allowance route only reduces taxable profit to zero - it cannot create a loss. If you have £900 of allowable expenses against £2,000 of gross income, claiming the allowance gives you a £1,000 taxable profit. Claiming actual expenses gives a £1,100 taxable profit. Allowance wins. If your expenses were £2,500 against £2,000 income, the actual-expenses route gives a £500 loss (carried forward against future trading income); the allowance route gives a £1,000 taxable profit. In a loss year actual expenses always wins because losses are valuable tax assets.