Answers · UK 2025/26
What is the Trading Allowance and how does it work in 2026/27?
The Trading Allowance is a £1,000/year tax exemption on gross self-employment or casual income. If you earn £1,000 or less from trading, you owe no tax and do not need to register. Above £1,000 you can deduct the £1,000 allowance instead of actual expenses -- whichever is more beneficial.
Full answer
The Trading Allowance gives every UK individual a £1,000 annual exemption on income from self-employment, casual work, or selling goods. It was introduced in April 2017 and the threshold has remained at £1,000 for 2026/27. **Rule 1: Gross income up to £1,000** If your total trading and casual income (before any expenses) is £1,000 or less in the tax year, it is entirely exempt. You do not need to register for Self Assessment or declare it on a return. This covers selling items online, occasional babysitting, or a small side hustle. **Rule 2: Gross income above £1,000** You must register for Self Assessment, but you can choose either: - Option A: Deduct the £1,000 Trading Allowance from gross income instead of actual expenses. Taxable profit = gross income minus £1,000. - Option B: Deduct actual allowable business expenses in the normal way. Choose whichever gives the lower taxable profit. If your actual expenses are less than £1,000, Option A wins. If you spent more than £1,000 on genuine business costs, Option B is better -- and you may also create a loss to carry forward. **What counts as trading income?** Freelance work, Etsy sales, eBay selling (if business-like), Airbnb letting where not covered by the Rent-a-Room Scheme, tutoring, delivery driving, craft fairs. **What does not qualify?** Employment income, rental income (covered instead by the £1,000 Property Allowance), dividends, savings interest. **Partnership income** The Trading Allowance cannot be used against income from a partnership in which you are a partner. **Interaction with National Insurance** From April 2026, if your trading profits after allowances are below the Small Profits Threshold (£6,845 for 2026/27 approximately), you will not build State Pension qualifying years from self-employment. Consider making voluntary Class 3 NI contributions (£18.40/week for 2026/27) to protect entitlement.
Related guides
More answers
This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.