What Is the Trading Allowance — and Can I Use It?

If you earn a modest amount from self-employment on top of other income — perhaps from a side hustle, casual work, or selling things online — you may be able to take advantage of the trading allowance and simplify your tax obligations considerably.

What Is the Trading Allowance?

The trading allowance is a £1,000 tax-free allowance for individuals who earn income from self-employment or casual work. You can find the full rules on HMRC’s trading and property allowance guidance. If your total trading income in a tax year is £1,000 or less, you don’t need to pay any tax on it, and in most cases you don’t need to register as self-employed or file a Self Assessment return for that income at all.

Who Is It For?

The trading allowance is designed primarily for people with small amounts of self-employed income — for example:

• Selling items on eBay, Etsy, or other platforms occasionally
• Occasional odd jobs, gardening, or handyman work
• Freelance work on the side of a main job
• Renting out a driveway or parking space (this uses the property income allowance, but the principle is similar)

It’s not intended for people running an established business as their primary income — that income needs to go through the normal Self Assessment process.

How It Works in Practice

If your trading income is £1,000 or less in a tax year, you simply don’t declare it to HMRC (unless you’re already required to file a Self Assessment return for other reasons, such as having a higher income or other untaxed income).

If your trading income is more than £1,000, you have two options:

• Claim the allowance and pay tax only on the amount above £1,000 (your taxable profit is income minus £1,000)
• Claim actual expenses in the normal way — deducting your real business costs from your income to arrive at taxable profit

You should choose whichever gives you the lower tax bill. If your actual expenses are more than £1,000, claiming expenses is likely better. If your expenses are minimal, the allowance is simpler.

You Can’t Use Both

You cannot claim the trading allowance and deduct actual business expenses in the same year for the same income. It’s one or the other.

What About the Property Income Allowance?

There’s a separate £1,000 allowance for property income (such as renting out a room, garage, or parking space). If you have both trading income and property income, you can potentially claim both allowances — one against each source. The two allowances are completely separate.

When the Trading Allowance Doesn’t Apply

You cannot use the trading allowance against income received from:

• A company you own or control
• Your employer or a connected employer
• A partnership you’re a member of

In these cases, normal rules apply and the allowance isn’t available.

Already Registered for Self Assessment?

If you’re already registered for Self Assessment and earn more than £1,000 through self-employment, you should still consider whether the trading allowance or claiming expenses gives you the better result each year. This is something a bookkeeper can review for you when preparing your return.

Unsure Whether This Applies to You?

PBAS can help you work out the most tax-efficient approach for your situation. Whether you’re just starting to earn self-employed income or you’ve been doing it for years, we make sure you’re not paying more tax than you need to.