What is the Trading Allowance in the UK?

Full answer

The Trading Allowance is a £1,000 annual tax exemption available to individuals with income from self-employment, freelancing, or casual trading activities (including online selling, crafts, tutoring, etc.). **Key rules:** - **Amount:** £1,000 per tax year (not per source — it is a single combined allowance across all trading activities) - **Gross income below £1,000:** You do not need to register for Self Assessment or report this income to HMRC. It is completely exempt. - **Gross income above £1,000:** You must register for Self Assessment and declare the income. You then choose one of two methods: 1. **Allowance method:** Deduct the £1,000 Trading Allowance from gross income (effective if expenses are low) 2. **Actual expenses method:** Deduct actual allowable business expenses (better if expenses exceed £1,000) You cannot use both methods simultaneously for the same trade. **You cannot claim both the allowance AND deduct expenses:** If you use the Trading Allowance, you cannot also claim mortgage interest, phone costs, materials etc. Choose whichever gives the lower taxable profit. **What income it covers:** - eBay, Vinted, Etsy, Facebook Marketplace sales (if trading, not merely disposing of personal possessions) - Social media / content creator income - Tutoring, gardening, babysitting (self-employed income) - Casual delivery gigs **Separate from the Property Allowance:** Rental income has its own £1,000 **Property Allowance** — the two allowances are separate and can each be used in the same year. **HMRC DAC7 reporting:** From January 2024, UK digital platforms (eBay, Airbnb, Vinted etc.) report seller income to HMRC if sellers make 30+ transactions or earn €2,000+ per year. The £1,000 allowance still applies, but HMRC will now have visibility of platform income.

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