Self-Employed Tax Guide · 2026/27
Trading Allowance 2026/27 -- The GBP1,000 Self-Employed Relief Explained
If your gross trading income is GBP1,000 or less in a tax year, you pay no Income Tax, no National Insurance and have no Self Assessment obligation. Above GBP1,000, you can still deduct the allowance instead of actual expenses -- if that gives a better result. This guide explains the rules, when to use the allowance vs claim real costs, how DAC7 platform reporting affects Vinted, Etsy and eBay sellers, and worked examples at different income levels.
What Is the Trading Allowance?
The Trading Allowance is a GBP1,000 annual exemption on gross trading income for UK taxpayers. It was introduced from the 2017/18 tax year and has remained at GBP1,000 since. It covers income from self-employment, casual trade, and miscellaneous income -- anything that is not employment income paid via PAYE.
The key relief is simple: if your total gross trading income across all self-employed activities is GBP1,000 or less in a tax year, you have no tax to pay, no NI to pay and no need to register for Self Assessment -- even if you would otherwise be required to because you are self-employed.
HMRC measures the allowance against gross income, not profit. Whether you made a profit of GBP700 or a loss of GBP200 on GBP1,000 of sales, the result is the same -- nothing to declare.
The Property Allowance -- a Separate GBP1,000
Alongside the Trading Allowance, there is a distinct Property Allowanceof GBP1,000 per year for property income. Both allowances are independent -- you can claim both in the same tax year if you have qualifying income in each category.
- Trading Allowance: covers self-employed and miscellaneous trading income
- Property Allowance: covers income from renting out property, land, a parking space, or a driveway
Example: you earn GBP850 selling handmade goods on Etsy (trading) and GBP750 renting your driveway (property). Both are under their respective GBP1,000 limits. You owe no tax on either, and you do not need to register for Self Assessment for these sources.
Trading Allowance vs Actual Expenses -- Which to Use?
When your gross trading income exceeds GBP1,000, you have a choice:
- Use the Trading Allowance (partial relief): Deduct GBP1,000 from gross income regardless of actual costs. Simple, no receipts needed.
- Claim actual allowable expenses: Deduct what you actually spent -- stock, postage, platform fees, equipment, a proportion of phone/internet. Requires records and receipts.
If actual expenses exceed GBP1,000, claim them -- you will pay less tax. If actual expenses are below GBP1,000, the Trading Allowance wins. You cannot combine both; once you use the Trading Allowance, no actual expenses can be claimed for that source.
Worked Examples
| Scenario | Gross Income | Actual Expenses | Using Trading Allowance | Using Actual Expenses | Better Choice |
|---|---|---|---|---|---|
| Etsy seller A | GBP900 | GBP300 | GBP0 (exempt) | GBP600 profit | Trading Allowance |
| Etsy seller B | GBP2,500 | GBP400 | GBP1,500 profit | GBP2,100 profit | Trading Allowance |
| Freelance designer | GBP4,000 | GBP1,800 | GBP3,000 profit | GBP2,200 profit | Actual expenses |
| Side trader C | GBP8,000 | GBP5,500 | GBP7,000 profit | GBP2,500 profit | Actual expenses |
Note: GBP prefix used above. In all cases the lower taxable profit figure is preferable.
Who Must Register for Self Assessment?
You must register for Self Assessment and file a tax return if:
- Your gross trading income exceeds GBP1,000 (the Trading Allowance is used up or you choose not to use it)
- Your total income from all sources exceeds the Personal Allowance of GBP12,570
- You are a partner in a business partnership
- You have other untaxed income above certain thresholds (rental income above GBP2,500, foreign income, etc.)
If your gross trading income is exactly GBP1,000 or below, you are fully exempt and registration is not required for that income. If your gross income is GBP1,001 or more, you must register even if after applying the allowance or expenses your profit is small or zero.
Register by 5 October after the end of the tax year in which you first became self-employed. So for 2026/27 trading income, register by 5 October 2027. Penalties apply for late registration.
DAC7 Platform Reporting -- What Sellers Need to Know
From January 2024, digital platforms operating in the UK or EU must collect and report seller income data to HMRC under the DAC7 (Digital Platforms Directive) rules. This affects sellers on:
- Vinted, Depop, eBay (goods resale platforms)
- Etsy, NotOnTheHighStreet (handmade/craft marketplaces)
- Airbnb, Vrbo (short-term lettings)
- Deliveroo, Uber Eats, Just Eat (delivery gig platforms)
- Fiverr, Upwork, TaskRabbit (service platforms)
Platforms report each seller's: name, address, date of birth, National Insurance number (or TIN), and total income received through the platform in the calendar year. HMRC receives this automatically and can match it against Self Assessment data.
Important: DAC7 reporting does not change the tax rules -- the GBP1,000 Trading Allowance still applies. But if your platform income is above GBP1,000 and you have not filed a return, HMRC may open an enquiry. Keep a record of all your gross receipts and expenses regardless of whether you need to file.
Selling personal used items (your own clothes, household goods) is generally not trading and the Trading Allowance does not apply to it. Instead, if you sell personal assets above the GBP3,000 Capital Gains Tax Annual Exempt Amount, CGT may apply -- though personal use chattels (items used personally and sold for under GBP6,000) are usually exempt.
Tax and NI on Self-Employed Income Above GBP1,000
Once your gross income passes the GBP1,000 threshold and after applying the allowance or actual expenses, any taxable profit is subject to:
- Income Tax: Personal Allowance GBP12,570; Basic Rate 20% up to GBP50,270; Higher Rate 40% up to GBP125,140; Additional Rate 45% above GBP125,140. The PA tapers by GBP1 for every GBP2 of income above GBP100,000, creating a 60% effective rate trap between GBP100,000 and GBP125,140.
- Class 4 NI (employee equivalent for self-employed): 9% on profits between GBP12,570 and GBP50,270; 2% above GBP50,270. (Note: Class 2 NI was abolished from April 2024.)
- Payments on Account: If your tax and Class 4 NI bill exceeds GBP1,000, HMRC requires advance payments on account -- two instalments due 31 January and 31 July each year, each equal to 50% of the prior year's liability.
For self-employed income that sits entirely within the Personal Allowance (profit under GBP12,570 for 2026/27), no Income Tax is due -- but Class 4 NI still applies to profits above GBP12,570. If you also have PAYE employment, your combined income determines the tax band for the self-employed profit.
Trading Allowance and HMRC Employment Status (CEST)
The Trading Allowance only applies to genuine self-employed or miscellaneous trading income. If HMRC or a tribunal determines that a working arrangement is actually employment -- not self-employment -- the income is taxed as employment income via PAYE and the Trading Allowance does not apply.
HMRC's Check Employment Status for Tax (CEST) tool helps workers and engagers determine whether a contract is employment or self-employment. Key factors include:
- Control: does the client control how, when and where work is done?
- Substitution: can you send someone else to do the work?
- Mutuality of obligation: must the client offer work and must you accept it?
- Financial risk: do you bear financial risk if the job goes wrong?
If you work primarily for one client and cannot substitute yourself, there is a real risk HMRC views the arrangement as employment. Run CEST before relying on the Trading Allowance for any single-client relationship. HMRC will stand by a CEST result where the information entered is accurate.
Making Tax Digital (MTD) and the Trading Allowance
From April 2026, Making Tax Digital for Income Tax Self Assessment (MTD ITSA) requires sole traders and landlords with qualifying income above GBP50,000 to submit quarterly digital updates to HMRC. The threshold drops to GBP30,000 in April 2027.
If your trading income is below GBP1,000 (fully covered by the Trading Allowance), you are exempt from Self Assessment entirely and MTD ITSA does not apply. If your income exceeds the Trading Allowance but remains below the MTD threshold, standard annual Self Assessment continues to apply. The Trading Allowance can still be used under MTD -- but it must be elected in the digital return in the same way as a paper return.
Key Rules -- Quick Reference
| Rule | Detail |
|---|---|
| Trading Allowance amount | GBP1,000 gross per tax year |
| Property Allowance amount | GBP1,000 gross per tax year (separate limit) |
| Applies to employment income? | No -- self-employed and miscellaneous only |
| Can I also claim actual expenses? | No -- it is one or the other |
| Must register for Self Assessment if under GBP1,000? | No (for this income source) |
| DAC7 reporting threshold | Platforms report all sellers; no minimum threshold for reporting |
| Partial relief available if income over GBP1,000? | Yes -- deduct GBP1,000 OR actual expenses, whichever is better |
| Income Tax Personal Allowance 2026/27 | GBP12,570 |
| Class 4 NI lower profits limit | GBP12,570 (9% to GBP50,270; 2% above) |