UK £1,000 Trading Allowance

How the trading allowance works

The UK £1,000 trading allowance lets you earn up to this amount tax-free from self-employment or casual income. Below are examples of how the trading allowance works in various scenarios:

Income below £1,000

If you make an income below £1,000 a year doing occasional gardening work:

Total sales for the year: £850
Your expenses: £200
Since your gross income is under £1,000, you don’t need to report this to HMRC
You don’t need to register for self assessment
It doesn’t matter that you made a profit of £650 (£850 – £200) – the £1,000 allowance applies to gross income

Income just over £1,000

You sell handmade jewellery on Etsy and make an income of just over £1,000:

Earnings received from Etsy after their commission is deducted: £1,140
Etsy commission deducted from sales: £60
Your total earnings are £1,200 as you need to add the commission to the income received to calculate your gross income
Your expenses are £240 plus £60 Etsy commission, so £300 in total
Because your gross income exceeds £1,000, you must register for self assessment
You have two options for calculating your taxable profit:

Deduct the trading allowance: £1,200 – £1,000 = £200 taxable profit
Deduct actual expenses: £1,200 – £300 = £900 taxable profit

In this case, using the trading allowance would be less beneficial

Multiple trading activities

If you have several side hustles, the £1,000 allowance applies to their combined income:

Online tutoring: £600
Weekend car washing: £500
Total income: £1,100
Since the combined income exceeds £1,000, you need to register for self assessment
You can still use the trading allowance against the total amount

Higher income example

You provide freelance graphic design work:

Total income: £5,000
Expenses (software, equipment): £1,500
In this case, you should deduct actual expenses rather than the trading allowance
Taxable profit using expenses: £5,000 – £1,500 = £3,500
Taxable profit using trading allowance: £5,000 – £1,000 = £4,000
Using actual expenses saves you £500 in taxable income

Important points to remember

You can’t use the trading allowance if you’re already self-employed with a different business
You can’t create a loss using the trading allowance
You must choose either the trading allowance or actual expenses – you can’t use both
The decision to use the trading allowance or actual expenses must be made for the whole tax year
The allowance applies to gross income before any expenses or costs are deducted

The above examples of the trading allowance illustrate how to structure income tax efficiently, to learn more about the allowance, click the link below:

Tax-free allowances on property and trading income – GOV.UK