If you earn £1,000 or less from self-employment or casual work in a tax year, the trading allowance means you pay no tax on it and do not need to register for Self Assessment. It covers everything from freelance work to selling on Etsy. Here is how it works in 2026/27.
The Trading Allowance at a Glance
| Detail | Amount / rule |
|---|---|
| Annual allowance | £1,000 |
| Tax year | 6 April 2026 – 5 April 2027 |
| Income below £1,000 | No tax, no Self Assessment registration needed |
| Income above £1,000 | Must register for Self Assessment; can still use allowance as deduction |
| Combined with property allowance? | Yes — both are separate |
| Must claim? | No — it applies automatically if income is below £1,000; must be claimed on return if income exceeds £1,000 |
What the Trading Allowance Covers
The allowance applies to income from:
- Freelance or consulting work (not through an employer)
- Selling goods — handmade, vintage, second-hand — on platforms like Etsy, eBay, or Vinted
- Casual services such as gardening, cleaning, dog walking, tutoring
- Delivery driving, ride sharing (e.g. Deliveroo, Uber)
- Renting out tools, equipment, or a parking space (not a room in your home — that uses Rent a Room)
- Any other self-employed or ad hoc income not from PAYE employment
What It Does Not Cover
- PAYE employment income — this is already handled through your tax code
- Income from a limited company — the allowance applies to sole trader or casual income only
- Rental income from property (a separate £1,000 property income allowance applies)
- Interest, dividends, or investment income (different allowances apply)
Three Scenarios
Scenario 1 — Income under £1,000 (allowance fully covers income)
Sophie sells handmade candles on Etsy and earns £620 in 2026/27. Her trading income is under £1,000.
- No tax due
- No need to register for Self Assessment
- No reporting obligation to HMRC
Scenario 2 — Income over £1,000, expenses under £1,000 (use allowance)
Marcus freelances as a web developer in the evenings, earning £3,500 in 2026/27. His only business expense is a £200 software subscription.
- He must register for Self Assessment and file a return
- He can choose: deduct actual expenses (£200) or claim the £1,000 trading allowance
- Using the allowance: taxable profit = £3,500 − £1,000 = £2,500
- Using actual expenses: taxable profit = £3,500 − £200 = £3,300
- Better choice: claim the £1,000 allowance — saves tax on an additional £800
Scenario 3 — Income over £1,000, expenses over £1,000 (use actual expenses)
Emma runs a small cake-making business from home, earning £5,000 with £2,200 of ingredients and packaging costs.
- Actual expenses (£2,200) exceed the trading allowance (£1,000)
- Better choice: deduct actual expenses — taxable profit = £5,000 − £2,200 = £2,800
- Claiming the trading allowance instead would leave taxable profit of £4,000
The Trading Allowance vs Registering as Self-Employed
If your trading income consistently exceeds £1,000 per year, you are legally required to register as self-employed and notify HMRC by 5 October following the first tax year of self-employment. The deadline for 2025/26 income is 5 October 2026.
Failing to register on time can result in a late registration penalty, though HMRC often waives this for first-time registrations if you come forward voluntarily.
Using Both Allowances
The trading allowance and property income allowance are entirely separate. You can use both in the same year:
| Income type | Amount | Allowance | Taxable |
|---|---|---|---|
| Freelance tutoring | £900 | Trading allowance £1,000 | £0 |
| Renting a parking space | £800 | Property allowance £1,000 | £0 |
| Total | £1,700 | £0 |
Neither triggers a Self Assessment registration requirement as both are below their respective allowances.
Making the Claim on Self Assessment
If your trading income exceeds £1,000 and you want to use the allowance as a deduction rather than actual expenses, select the trading allowance option in the self-employment section of your Self Assessment return. You cannot use both the allowance and actual expenses for the same income stream.
See our Self Assessment guide, tax on cash in hand work, and do I pay tax on selling personal belongings online.