Guides

The £1,000 trading allowance: when it applies and when to use it

Checked against GOV.UK on 15 October 2026

General guidance taken from GOV.UK, not advice about your own tax affairs. HMRC's rules change, so the GOV.UK pages listed at the end are the final word.

The trading allowance lets you have up to £1,000 of trading income each tax year tax-free. It covers income from self-employment, casual services such as babysitting or gardening, and hiring out personal equipment such as power tools. There's a separate £1,000 property allowance for income from land or property, so if you have both kinds of income, you get £1,000 for each.

If your trading income is £1,000 or less

If your gross trading income for the tax year is £1,000 or less, you usually don't need to tell HMRC. GOV.UK calls this "full relief". You must still keep records of the income.

Gross income means the total before any allowances or expenses are taken off, whether you use the cash basis or traditional accounting.

Even under £1,000, you must register for Self Assessment and declare the income if:

  • you've made a loss and want to claim relief for it
  • you want to pay voluntary Class 2 National Insurance to help qualify for some benefits
  • you want to claim Tax-Free Childcare based on your self-employment income
  • you want to claim Maternity Allowance based on your self-employment

You can still use the allowance on that return.

If your trading income is more than £1,000

You must register for Self Assessment by 5 October after the end of the tax year. On your return you then choose one of these — not both:

  • deduct the £1,000 allowance from your gross income ("partial relief"), or
  • deduct your actual allowable expenses

Which leaves less taxable profit is simple arithmetic: whichever is bigger, £1,000 or your expenses. For example, with £3,000 of income, the allowance leaves £2,000; £1,400 of expenses would leave £1,600.

The allowance can't take you below zero, so it can't create a loss. If your expenses are more than your income, GOV.UK points out that claiming them may be better, because a loss can be relieved.

When you can't use it

You can't use the allowance in a tax year if any of your trading income comes from:

  • a company you, or someone connected to you, owns or controls
  • a partnership where you, or someone connected to you, is a partner
  • your employer, or your spouse's or civil partner's employer

It also doesn't apply to trading income from a partnership.

Keep records

If you use the allowance you must keep a record of your income — for example invoices, a spreadsheet of what you received, emails confirming payments, statements from whoever paid you, bank statements, pay-in records, or a diary of income from each customer. HMRC can charge a penalty if your records aren't accurate, complete and readable, or aren't kept for long enough.

How it affects benefits and other calculations

If you work out your profit using the allowance instead of actual expenses, your income is reduced by the allowance for tax credits, the High Income Child Benefit Charge, student loan repayments and the married couple's allowance. Universal Credit is not affected by the allowance.

Sources