Glossary · UK
What is Trading Income?
Profits from a self-employed trade, profession or vocation assessed under Income Tax and subject to Class 4 National Insurance Contributions.
Full Definition
Trading income is profit from a trade, profession or vocation carried on by an individual, assessed under the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) Part 2. It is calculated as receipts less allowable business expenses. Since April 2023, the basis of assessment changed from the current-year basis to a tax-year basis (basis period reform), meaning profits are assessed on the period from 6 April to 5 April regardless of the business accounting year. Trading income is subject to: income tax at the applicable marginal rate (20%/40%/45%); Class 4 National Insurance Contributions (6% on profits GBP 12,570-50,270; 2% above GBP 50,270 in 2026/27). Class 2 NI was abolished from April 2024. The GBP 1,000 trading allowance provides an automatic exemption for very small trading income.