UK Trading Allowance: Thresholds, Reporting, and Records

The UK trading allowance lets you earn up to £1,000 of gross trading income in a tax year without paying income tax on it, and without having to tell HMRC. It has been available since 6 April 2017. Stay at or below £1,000 and the income is fully covered. Go above it and you can still knock a flat £1,000 off your gross income instead of deducting actual expenses, but you’ll need to register for Self Assessment and file a return. The trading allowance is separate from the £1,000 property allowance, so rental income and trading income each get their own.¹

What Income the Allowance Covers

The allowance applies to income from self-employment, casual services like babysitting or gardening, hiring out personal equipment such as power tools, freelance work, selling homemade crafts online, and hobbies that have started to bring in regular money.¹ If you’re being paid for a service or for something you’ve made or sourced to sell, that’s trading income.

The £1,000 limit is a single ceiling across everything you do, not one per activity. Earn £600 selling candles and £500 dog walking, and your combined £1,100 is over the threshold even though each strand alone would sit under it.¹

The figure that matters is gross income: the total money coming in before you take anything off for materials, postage, or fees. A few things sit outside the allowance. Selling personal belongings you no longer want isn’t trading. Rental income falls under the property allowance instead. And capital receipts, such as selling off a piece of business equipment, aren’t covered either.

Under £1,000 vs. Over £1,000

How the allowance works depends on where your gross trading income lands for the tax year.

At or below £1,000 (full relief): no income tax is owed on that income, and you generally don’t need to register for Self Assessment or tell HMRC about it.¹
Above £1,000 (partial relief): subtract the flat £1,000 from your gross income to get your taxable profit. Earn £2,400 and your taxable trading profit is £1,400.¹

The trade-off with partial relief is that claiming the £1,000 allowance rules out deducting your actual business expenses. You pick one route or the other.¹ In practice, if your real costs are under £1,000, take the allowance. If your actual expenses are higher, deduct the expenses.

Run the numbers both ways when you have a loss year. Suppose you earned £2,100 but spent £2,345 on supplies. Using the allowance leaves you with a taxable profit of £1,100. Claiming actual expenses gives you a £245 loss that can be carried forward or offset against other income. Choosing the allowance wipes out loss relief entirely.¹

When You Cannot Use the Allowance

Certain income is blocked from the allowance by statute, largely to stop it being used to reroute money that belongs in the ordinary tax system:²

Income from a trade you carry on as a partner in a firm.
Any payment from someone who employs you, or from a company connected with your employer.
Payments from a close company where you’re a participator.
Payments between spouses, civil partners, or people connected with partners in a firm.
Income that already qualifies for rent-a-room relief in the same tax year.

The employer rule is the one that catches people most often. Doing freelance work on the side for a company that also employs you means that side income won’t qualify, even if the work is entirely different from your day job.

What You Still Owe: National Insurance and VAT

The allowance is an income tax relief only. National Insurance follows its own thresholds. For 2025-26, Class 2 contributions are treated as paid automatically once profits reach £6,845, and below that you can pay voluntary Class 2 at £3.50 a week to protect your State Pension record. Class 4 kicks in at 6% on profits between £12,570 and £50,270, and 2% above that.³ If your trading income is around the £1,000 mark, NIC isn’t a practical issue because your taxable profit is nil, but keep the thresholds in mind if the work grows.

VAT is also separate. The registration threshold is £90,000 of taxable turnover, and that figure is total sales, not profit after the trading allowance.⁴ For anyone using the £1,000 allowance it’s a distant concern, but rapid growth in sales can bring it closer than expected.

Reporting, Deadlines and Penalties

Stay at or below £1,000 in gross trading income and you generally don’t need to register for Self Assessment or file a return.¹ Cross the threshold and you must register. The deadline is 5 October following the end of the tax year in which you earned the income. If you register late, HMRC will send you a different return deadline, usually about three months from the date of their letter.⁵

You claim the allowance inside the self-employment section of your return. Enter your total gross income, then elect for the £1,000 deduction instead of claiming actual expenses. HMRC calculates the tax on the net figure.

Miss the filing deadline and you get an automatic £100 penalty, whether or not tax is owed. After three months, daily £10 penalties start, capped at £900. At six months, there’s a further charge of 5% of the tax due or £300, whichever is greater, and another charge of the same size at twelve months.⁶ On a small trading bill, the penalties can easily outrun the tax.

Records to Keep

The tax year runs from 6 April to 5 April the following year.⁵ Keep a running total of every payment you receive from trading during that period. Bank statements, digital invoices, PayPal history, or a simple cash log will all do the job.

Keep the records even if you expect to stay under £1,000. Since January 2024, digital platforms like eBay, Vinted, and Etsy have been required to collect seller information and report it directly to HMRC.⁷ HMRC may already have a picture of your sales before you say anything, so your own numbers need to line up.

Universal Credit

The trading allowance does not carry across to Universal Credit. If you claim UC and do any self-employed work, you must report all business income at the end of each assessment period, whatever the amount, including payments from platforms like eBay or Vinted.⁸ You still submit a report in months when you earned nothing. Skipping it can produce an overpayment you’ll have to repay.

Making Tax Digital on the Horizon

From 6 April 2026, sole traders and landlords with total qualifying income from trading and property above £50,000 must use Making Tax Digital for Income Tax Self Assessment, which means digital record-keeping through compatible software and quarterly updates instead of a single annual return. The threshold drops to £30,000 from 6 April 2027.⁹ Anyone using the £1,000 allowance is well below those levels, but if trading income grows or combines with property income, digital records become mandatory.

1
GOV.UK. Tax-Free Allowances on Property and Trading Income
2
Legislation.gov.uk. Income Tax (Trading and Other Income) Act 2005 – Part 6A
3
GOV.UK. Self-Employed National Insurance Rates
4
GOV.UK. How VAT Works – VAT Thresholds
5
GOV.UK. Self Assessment Tax Returns – Deadlines
6
GOV.UK. Self Assessment Tax Returns – Penalties
7
GOV.UK. Technical Amendments to the Reporting Rules for Digital Platforms
8
GOV.UK. Report Business Income and Expenses to Universal Credit if You Are Self-Employed
9
GOV.UK. Find Out if and When You Need to Use Making Tax Digital for Income Tax