Trading Allowance UK: £1,000 Side Income Rules (2026)

The UK trading allowance is a £1,000 tax-free exemption for individuals' gross trading income each tax year. If your side income from selling goods, freelancing or casual services is £1,000 or less before expenses, you normally pay no tax on it and do not need to tell HMRC. Above £1,000, you must register for Self Assessment, but you can still deduct the £1,000 instead of your actual expenses.

This guide covers who can use it, how to choose between the allowance and real expenses, how HMRC reporting rules for digital platforms work, and what the announced £3,000 reporting threshold actually means. It reflects HMRC guidance at the time of writing (October 2026). It is general information, not tax advice; check your own position with HMRC or a qualified accountant.

How the trading allowance works

The allowance was introduced on 6 April 2017 to take people with small amounts of side income out of the tax system. The rules are short, but each word matters:

• It is gross, not profit. The £1,000 is measured on income before expenses. If you sell £1,400 of goods that cost you £800 to make, your gross income is £1,400, which is over the limit.
• It is one limit for everything. Income from all your trading activities is added together. Dog walking plus online craft sales plus freelance editing share the same £1,000.
• It is per tax year. The UK tax year runs from 6 April to 5 April.
• It is per person. A couple running separate side businesses each have their own £1,000.

HMRC's own example: someone earning £800 from content creation and £500 from online craft sales has £1,300 of side income, so they need to tell HMRC.

Who can and cannot use it

You can use the allowance for income from self-employment, casual services such as babysitting, gardening or odd jobs, and hiring out personal equipment such as power tools. It applies whether you are employed, retired, a student or otherwise self-employed.

You cannot use it for:

• your share of profits from a partnership
• income from a partnership where you or a connected person are partners
• income from a company that you or a connected person own or control
• income from your employer, or your spouse's or civil partner's employer

Limited companies cannot claim it at all, because a company pays Corporation Tax on its own profits; see our guide to UK corporation tax rates. If you are weighing up whether to formalise a side business, our comparison of sole trader vs limited company explains the trade-offs.

Side income tax UK: under or over £1,000

Gross trading income in the tax year	What you need to do
£1,000 or less	Nothing in most cases. No tax, no Self Assessment registration. Keep basic records.
Over £1,000	Register for Self Assessment by 5 October after the tax year ends, file a return by 31 January (online) and pay any tax due.
Over £1,000 with low expenses	Deduct the £1,000 allowance instead of expenses on your return.
Over £1,000 with expenses above £1,000	Deduct actual allowable expenses instead of the allowance.

Going over £1,000 does not automatically mean you owe tax. If your total income, including your salary, is below your personal allowance (£12,570 for most people at the time of writing), the profit may be covered. But you must still report it. Our Self Assessment tax return guide walks through registration and filing.

Allowance or expenses: a worked example

Once your gross income is over £1,000, you choose on your tax return between two methods. You cannot use both for the same income.

Example 1: low costs. Jamie tutors maths in the evenings and earns £2,800 in 2025/26. His real costs are about £400 for books and travel.

• Using expenses: £2,800 minus £400 = £1,400 taxable profit
• Using the allowance: £2,800 minus £1,000 = £1,800 taxable profit

Expenses give the lower profit here, so Jamie deducts expenses. If Jamie is a basic rate taxpayer through his salary, his tax is 20% of £1,400 = £280, plus any Class 4 National Insurance if his total self-employed profits are above the lower profits limit.

Example 2: almost no costs. Aisha does freelance proofreading for £2,800 with only £150 of costs.

• Using expenses: £2,800 minus £150 = £2,650
• Using the allowance: £2,800 minus £1,000 = £1,800

The allowance saves Aisha £850 of taxable profit, worth £170 at the basic rate. The rule of thumb is simple: if your genuine allowable expenses are under £1,000, use the allowance; if they are over £1,000, deduct them. Our list of self-employed tax deductions helps you check what counts as an allowable expense.

Example 3: a loss. If expenses exceed income, deducting expenses creates a loss that may be usable against other income. The allowance can never create a loss, so in this case expenses are the better choice and you may want to register even if income is below £1,000.

HMRC reporting rules for digital platforms

Since 1 January 2024, the UK has applied the OECD's model reporting rules for digital platforms. Online marketplaces and gig apps that let you sell goods, provide services or rent out property must collect your details and send HMRC a report of what you earned. Reports are due by 31 January for the previous calendar year, so income from January to December 2025 was reported by 31 January 2026.

Activity	Is the seller reported?
Selling goods, fewer than 30 sales and €2,000 (about £1,700) or less	No, excluded as an occasional seller
Selling goods, 30 or more sales, or more than €2,000	Yes
Providing services (tutoring, driving, delivery, freelance work)	Yes, no minimum
Renting out property or transport	Yes, no minimum

The platform must also give you a copy of what it reported. Two points cause confusion:

1. Reporting is not a new tax. HMRC has said plainly that there are no tax changes for online sellers. The data simply helps HMRC check whether people who should be filing returns are doing so.
2. The platform thresholds are not the trading allowance. You can be reported and owe nothing, for example a person selling 40 second-hand books for £5 each. You can also be under the platform thresholds and still need to report, for example someone selling 20 handmade items for £75 each, which is £1,500 of trading income.

Selling your own unwanted belongings is generally not trading, even if you sell a lot. Trading usually involves buying to resell, making goods to sell, or doing it regularly with a profit motive. If a platform reports you for personal sales, keep a note of what you sold and why. The OECD has consulted on changing its model thresholds, so check GOV.UK for the current UK figures.

The planned £3,000 reporting threshold

In March 2025 the government announced that the Self Assessment reporting threshold for trading income would rise from £1,000 to £3,000 gross during this Parliament. The plan also aligns the thresholds for property income and other taxable income at £3,000 each. People earning between £1,000 and £3,000 would report through a new, simpler digital service instead of a full tax return, or stay in Self Assessment if they prefer.

The key facts, as of October 2026:

• The tax-free trading allowance itself is still £1,000. The £3,000 figure is a reporting threshold, not a bigger exemption.
• Income between £1,000 and £3,000 will remain taxable. Only the way you report it changes.
• HMRC's side hustle guidance says the new reporting tool is due by 2029. Until it launches, income over £1,000 must be reported through Self Assessment.

Social media claims that "you do not need to do anything until you earn £3,000" are wrong, and HMRC has said so directly. Check GOV.UK for the launch date of the new service.

Records, invoices and Making Tax Digital

Even under £1,000, keep a simple record of what you earned, when and from whom. It is the only way to prove you stayed under the limit. Once your side business grows, good records save time at filing:

• Issue a proper invoice for freelance or service work. You do not need a registered business to do this; our guide on how to invoice without a business covers the basics.
• Use a consistent numbering system and keep copies of every invoice.
• Keep receipts for costs, even if you expect to use the allowance, so you can compare both methods.
• Separate side income from personal money, ideally in a dedicated account.

Making Tax Digital for Income Tax started in April 2026 for sole traders and landlords with qualifying income over £50,000, with the threshold due to drop to £30,000 from April 2027 and £20,000 from April 2028. Most side hustles are well below these levels, but our Making Tax Digital for Income Tax guide explains what to expect as you grow.

How to claim the trading allowance on your tax return

If your income is over £1,000 and you decide the allowance gives the better result, the claim itself is quick. The steps for most sole traders filing online are:

1. Register for Self Assessment by 5 October after the end of the tax year. You will receive a Unique Taxpayer Reference (UTR) by post, which can take a couple of weeks.
2. Add up your gross trading income for the tax year from all activities: invoices paid, platform payouts before fees, and cash jobs.
3. Complete the self-employment pages. Enter your turnover, then tick or enter the trading income allowance instead of listing expenses. You cannot claim both for the same income.
4. Check the result. The calculation shows any Income Tax and Class 4 National Insurance due on the profit.
5. File and pay by 31 January. If your Self Assessment bill is more than £1,000, payments on account towards the next year may also be due.

Platform payouts often arrive net of commission. Your gross income is the full amount customers paid, so add the fees back. For example, if a freelance marketplace shows £3,000 billed and paid you £2,400 after a 20% fee, your turnover is £3,000 and the £600 fee is an expense. In that case actual expenses already beat the £1,000 allowance before you count anything else. Our guide to invoicing on Fiverr and Upwork explains how to keep track of gross and net figures.

Common mistakes with side income

• Applying the £1,000 to profit instead of gross income.
• Claiming a separate £1,000 for each activity.
• Assuming platform reporting thresholds are tax thresholds.
• Claiming the allowance and expenses at the same time.
• Missing the 5 October registration deadline in your first year over the limit, which can lead to penalties.
• Believing the £3,000 threshold is already in force.

Conclusion

The trading allowance makes small side incomes simple: stay at or under £1,000 gross across all your activities and there is nothing to report. Go over, and you register for Self Assessment but can still deduct £1,000 instead of expenses when that gives a better result. Platform reporting gives HMRC more visibility, and a £3,000 reporting threshold is on the way, but neither changes the tax rules today. If you invoice clients for side work, our free UK invoice generator creates a clean PDF invoice with your details in minutes, and our minimal invoice template suits most freelancers.