Tax and NI
The £1,000 trading allowance
A flat £1,000 deduction for small trading income, used instead of your real costs and never on top of them.
The trading allowance lets an individual earn up to £1,000 of gross trading income in 2026/27 without paying tax on it and, in most cases, without telling HMRC; GOV.UK calls this full relief. Above £1,000 it becomes a choice: deduct a flat £1,000 from your takings, known as partial relief, or deduct your real allowable expenses, but never both. A weekend dog walker who takes £3,200 and spends £450 on leads, treats and insurance is taxed on £2,200 with the allowance instead of £2,750 with receipts. Gross means everything you invoice or receive before any cost, from one trade or several added together. Once gross income passes £1,000 you must register for Self Assessment by 5 October after the end of the tax year, even if the allowance then wipes out most of the profit. Type your takings and costs below to see which route leaves less to tax.
£1,000 trading allowance or real expenses?
Taxable profit
£2,200
| Best choice | trading allowance |
| With the allowance | £2,200 |
| With real expenses | £2,750 |
Figures checked by Radif Partners · Editorial policy · How we calculate
Full relief and partial relief
The allowance sits in section 783A of the Income Tax (Trading and Other Income) Act 2005 and works at two levels. If total gross trading income for the year is £1,000 or less, all of it is exempt: no tax, and usually no return. If gross income is higher, you may deduct up to £1,000 instead of working out expenses, but you cannot create a loss with it. The same rule applies whether you keep your books on the cash basis or with traditional accounting, because the test looks at what goes on the return before any deduction.
The allowance belongs to the person, not to each activity. A tutor who also sells prints online adds both sets of takings together, and a single £1,000 covers the total. There is a separate £1,000 property allowance for rental income, so a landlord with a small side trade can have both.
Allowance or real costs: four examples
The comparison is simple arithmetic: the allowance wins whenever your genuine allowable costs are below £1,000. Activities with very few costs, such as tutoring or casual services, tend to favour it; anything that buys stock or materials usually does not.
| Activity | Gross | Real costs | Taxable with allowance | Taxable with expenses | Better route |
|---|---|---|---|---|---|
| Babysitter | £1,800 | £120 | £800 | £1,680 | allowance |
| Market stall | £6,000 | £2,900 | £5,000 | £3,100 | expenses |
| Tool hire to neighbours | £1,400 | £650 | £400 | £750 | allowance |
| Weekend photographer | £4,500 | £980 | £3,500 | £3,520 | allowance |
The babysitter is under £1,000 once you look at the taxable column, but not exempt: gross takings of £1,800 are above the limit, so registration is still needed even though the profit after the allowance is small.
What it is worth next to a job
Most people using the allowance have a salary as well, so the profit is taxed at their top rate through Self Assessment. Someone earning £26,000 who makes £4,000 from evening bike repairs with £300 of parts pays £600 using the allowance, against £740 if they listed the parts instead. The job plus self-employment calculator handles larger side businesses, where Class 4 starts to matter.
Registering, records and other effects
When gross income goes over £1,000, registering for Self Assessment is required, by 5 October after the tax year in which it happened. Some people under the limit register anyway, for example to claim a loss, to pay voluntary Class 2 contributions or to claim Maternity Allowance or Tax-Free Childcare based on self-employment. Records still matter at any level: invoices, bank statements, a diary of jobs or a simple spreadsheet of receipts. Profit reduced by the allowance also counts for the High Income Child Benefit Charge and student loan repayments, while Universal Credit uses its own income rules and ignores the allowance. Source: HMRC, Tax-free allowances on property and trading income.