The Trading Allowance is a £1,000 tax-free allowance per tax year. It applies to those with self-employed or casual income.
It covers income from:
- Selling goods online through platforms such as eBay or Vinted
- Freelance or gig work (including design or virtual assistance)
- Casual services such as gardening or tutoring
- Hiring out personal equipment such as tools or cameras
If your total income is £1,000 or less, you do not report it to HMRC. Additionally, you do not pay tax on it.
How the Trading Allowance Works
The Trading Allowance applies to your gross income, which is the total you earn before expenses or other deductions. It does not apply to profit, which is what remains after expenses.
For example: If you earn £900 from handmade products, your total is below £1,000 and you do not report or pay tax.
Gross income also includes fees taken by platforms before payment. If a platform charges selling fees, you must still count the full sales value.
If You Earn More Than £1,000
When your income exceeds £1,000 per year, you must register for Self Assessment. You must then submit a tax return to HMRC.
After this, you can choose one of the following options:
- Claim the £1,000 Trading Allowance
- Deduct your actual business expenses
You cannot claim both of these, so you should choose the option that reduces your tax bill the most.
For example: If you earn £2,000 from a side business, claiming the allowances means £1,000 is still taxable. If expenses total £1,500 instead, deducting expenses works better.
Choosing between between the allowance and expenses is simple:
- Use the allowance if expenses are below £1,000
- Use expenses if they exceed £1,000
This enables you to reduce your taxable income as much as possible.
When You Must Register for Self Assessment
You must register for Self Assessment if:
- Your trading income exceeds £1,000
- You want to claim expenses instead of the Trading Allowance
- You make a loss and want relief
- You want to pay voluntary National Insurance
- You need certain benefits such as Tax-Free Childcare
Moreover, you must register by 5 October after the tax year ends.
When You Cannot Use the Trading Allowance
You cannot use the Trading Allowance if you receive:
- Income from a company you own or control
- Income from a business partnership
- Income from your employer or your partner’s employer
In these cases, normal tax rules apply so you must report all relevant income.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.