The GBP 1,000 Trading Allowance Explained for 2026/27
How the GBP 1,000 trading allowance works for side hustles in 2026/27 - who qualifies, when to claim it, and when full expenses beat it.
Quick answer
The trading allowance lets you earn GBP 1,000 of gross trading income tax-free in the 2026/27 tax year (6 April 2026 to 5 April 2027). If your side hustle brings in GBP 1,000 or less, you usually owe no tax and do not need to report it. Above GBP 1,000, you deduct either the allowance or your actual expenses - whichever leaves a lower taxable profit.
What counts as trading income
The trading allowance applies to income from a trade, profession or vocation, and to certain casual or "miscellaneous" earnings. In plain terms, that means money from a side hustle: selling handmade goods, freelance design, tutoring, dog walking, content creation, reselling items at a profit, gig-economy work and similar activities.
It does not apply to:
- Employment income paid through PAYE (your salary).
- Income from a partnership.
- Income that already has its own allowance, such as property income (which has a separate GBP 1,000 property allowance).
How the GBP 1,000 trading allowance works
There are two ways the allowance helps, depending on how much you earn.
Full relief: income of GBP 1,000 or less
If your total gross trading income across all side hustles for the year is GBP 1,000 or less, the allowance gives full relief. The income is effectively ignored for tax. In most cases you do not need to register for Self Assessment or report it at all.
Partial relief: income above GBP 1,000
If you earn more than GBP 1,000 gross, you can deduct the GBP 1,000 allowance from your gross income instead of deducting your actual business expenses. Your taxable profit becomes:
Gross income minus GBP 1,000
This is a straight either/or choice. For any given tax year you use the allowance or you use real expenses - you cannot mix them.
Allowance versus actual expenses: which wins?
The decision is purely arithmetic. Work out your taxable profit both ways and pick the lower figure.
| Your actual expenses | Best choice | Why |
|---|---|---|
| Below GBP 1,000 | Trading allowance | GBP 1,000 deduction beats smaller real costs |
| Exactly GBP 1,000 | Either | Same result either way |
| Above GBP 1,000 | Actual expenses | Larger deduction lowers taxable profit further |
Worked example
Imagine you earn GBP 4,000 gross from freelance writing in 2026/27.
- Using the allowance: GBP 4,000 minus GBP 1,000 = GBP 3,000 taxable profit.
- Using actual expenses of GBP 600: GBP 4,000 minus GBP 600 = GBP 3,400 taxable profit.
Here the allowance wins, because your real costs are below GBP 1,000. But if your expenses were GBP 1,800 (laptop, software, travel), claiming actual costs would give a taxable profit of GBP 2,200 - so real expenses would be the better route.
Self-Employed Tax Calculator
Calculate income tax, Class 2 and Class 4 National Insurance for self-employed and sole traders for 2025/26.
Open Self-Employed Tax calculatorWhere the profit fits in your overall tax
Your taxable trading profit after the allowance does not sit in a vacuum. It is added to your other income and taxed at your marginal rate.
For 2026/27 the key thresholds are:
| Band | Gross income | Income Tax rate |
|---|---|---|
| Personal allowance | Up to GBP 12,570 | 0% |
| Basic rate | GBP 12,571 - GBP 50,270 | 20% |
| Higher rate | GBP 50,271 - GBP 125,140 | 40% |
| Additional rate | Above GBP 125,140 | 45% |
If you live in Scotland, Income Tax rates differ (a Starter rate of 19% up to a Top rate of 48%), so check the Scottish bands separately.
On top of Income Tax, self-employed profits attract Class 4 National Insurance at 6% between GBP 12,570 and GBP 50,270, then 2% above that. There is also voluntary Class 2 at GBP 3.65 per week, which can be worth paying to protect your State Pension record if your profits are below the Small Profits Threshold of GBP 7,105.
The trading allowance and the personal allowance
These two often get confused. They are completely separate and stack.
- The personal allowance (GBP 12,570 in 2026/27, frozen to April 2028) is how much total income you can receive before paying any Income Tax. Note that it is tapered away above GBP 100,000, disappearing entirely at GBP 125,140.
- The trading allowance (GBP 1,000) reduces your trading income before it is even added to your taxable total.
So someone with a GBP 30,000 salary and a GBP 900 side hustle pays tax on the salary as normal, and the GBP 900 is wiped out by the trading allowance.
One allowance, many side hustles
The GBP 1,000 is per person, per tax year - not per business. If you sell crafts, tutor on weekends and drive for a delivery app, you add together the gross income from all three and apply a single GBP 1,000 allowance to the combined figure.
Trading allowance versus property allowance
The trading allowance (GBP 1,000) covers self-employment, freelancing and casual trading income. The property allowance (GBP 1,000) is a separate allowance covering income from land and property, such as renting out a driveway, garage or room. If you have both types of income, you can claim both allowances in the same year - up to GBP 2,000 of combined tax-free income.
When NOT to use the allowance
Two situations make the allowance the wrong choice:
- Your real expenses exceed GBP 1,000. Claiming actual costs gives a bigger deduction and a lower taxable profit.
- Your business makes a loss. Claiming the trading allowance generally prevents you from recording a loss to carry forward or set against other income. If you have a genuine loss you want to use, deduct actual expenses instead.
Always model both options before filing. A few minutes with the numbers can save more tax than the allowance itself.
How to report income over GBP 1,000
If your gross trading income is above GBP 1,000, you need to:
- Register for Self Assessment (if you have not already) by the deadline for the tax year.
- Complete the self-employment section of your tax return.
- Enter your gross income, then deduct either the GBP 1,000 allowance or your actual expenses.
- Pay Income Tax and Class 4 NI on the resulting profit by the relevant payment deadlines.
If your combined income tips you into a higher band, or you also repay a student loan, your effective deductions on the extra profit can be significant. A take-home calculation helps you see what you actually keep.
Income Tax Calculator
Work out how much income tax you owe using the latest 2025/26 UK tax bands.
Open Income Tax calculatorThe bottom line
The trading allowance is one of the simplest reliefs in the UK system: GBP 1,000 of gross side-hustle income, tax-free, with no paperwork if you stay under the threshold. Above GBP 1,000, treat it as a quick test against your real expenses. Low costs - take the allowance. High costs - claim the actual figures. Either way, run both calculations before you commit, because the right answer depends entirely on your own numbers.
Frequently asked questions
What is the trading allowance for 2026/27?
The trading allowance is a GBP 1,000 tax-free allowance for casual or self-employed trading income. If your gross trading income for the tax year (6 April 2026 to 5 April 2027) is GBP 1,000 or less, it is fully covered and you usually do not need to report it. If income is above GBP 1,000, you can deduct the GBP 1,000 instead of claiming actual expenses when working out your taxable profit.
Do I need to tell HMRC if I earn under GBP 1,000?
Generally no. If your total gross trading income for the year is GBP 1,000 or less, the trading allowance gives you full relief automatically and you normally do not have to register for Self Assessment or report it. There are exceptions, such as if you already file a return for other reasons or HMRC asks you to. If in doubt, keep records and check the position on gov.uk.
Can I claim the trading allowance and my actual expenses?
No. The trading allowance is an either/or choice. For each tax year you either deduct the GBP 1,000 allowance from your gross income, or you deduct your actual allowable business expenses - not both. Work out your profit both ways and pick whichever leaves the lower taxable figure. If your real expenses are below GBP 1,000, the allowance usually wins.
Is the trading allowance the same as the personal allowance?
No. They are separate. The personal allowance (GBP 12,570 for 2026/27) is the amount of total income you can receive before any Income Tax is due. The trading allowance is an extra GBP 1,000 that applies specifically to trading income before it even counts towards your taxable income. You can benefit from both at the same time.
Does the trading allowance cover National Insurance too?
If your gross trading income is GBP 1,000 or less and fully covered by the allowance, there is generally no profit to charge to Class 4 National Insurance. Above that level, your taxable profit after the allowance feeds into both Income Tax and Class 4 NI (6% between GBP 12,570 and GBP 50,270, then 2%). Use a self-employed tax calculator to see the combined effect.
Can I use the trading allowance against my employed salary?
No. The trading allowance only applies to trading, casual or miscellaneous income - not employment income taxed under PAYE. If you have a day job and a side hustle, your salary is taxed normally through payroll, while the side hustle income can be reduced by the GBP 1,000 trading allowance before being added to your taxable income.
What is the difference between the trading allowance and the property allowance?
They are two separate GBP 1,000 allowances. The trading allowance covers self-employment and casual trading income; the property allowance covers income from property, such as renting a room or a driveway. You can claim both in the same year if you have both types of income, giving up to GBP 2,000 of combined tax-free income.
When should I not use the trading allowance?
Avoid it when your actual allowable expenses exceed GBP 1,000, because claiming real costs then gives a lower taxable profit. Also consider not using it if your business makes a loss you want to carry forward or set against other income, since claiming the allowance can stop you using that loss. Run the numbers both ways before deciding.
Does the trading allowance apply per person or per business?
It is a single GBP 1,000 allowance per person, per tax year - not per business. If you have several side hustles, you add up the gross income from all of them and apply one GBP 1,000 allowance across the total. You cannot claim GBP 1,000 for each separate activity.
How do I report income above GBP 1,000?
Register for Self Assessment if you have not already, then complete the self-employment pages of your tax return. You report your gross trading income, then either deduct the GBP 1,000 trading allowance or your actual expenses. The resulting profit is added to your other income and taxed at your marginal rate, with Class 4 NI also applying above the threshold.
Try the calculators
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