What the trading allowance is
The trading allowance is a tax exemption of up to £1,000 a tax year for an individual's trading income. It can cover small amounts earned from selling goods or providing services. It is a single allowance across your relevant trading income, not £1,000 for every separate activity.
If your total gross trading income is £1,000 or less in the tax year, you may not need to tell HMRC about it. If it is more than £1,000, you generally need to register for Self Assessment and report the income. The allowance can then reduce the amount of trading income on which tax is worked out.
The £1,000 figure is a reporting threshold and a tax allowance. It does not mean every person below it owes no tax for every reason, or that income above it is automatically taxed in full. Other income and circumstances can matter.
The £1,000 is gross income, not profit
Gross income means the total amount your customers paid or owe you for your work before you subtract business costs. HMRC's threshold is not based on what remains after expenses. For example, if you invoice £1,400 during the tax year and spend £500 on business costs, your profit may be £900, but your gross trading income is still £1,400. That is over the £1,000 threshold, so you must check the Self Assessment rules and normally register.
Keep a record of the full amounts you earn as well as your costs. This makes it easier to see whether you have crossed the threshold and to complete a return if one is due.
Claim the allowance or deduct real expenses
When your gross trading income is over £1,000, you can usually choose to deduct the trading allowance from it instead of claiming actual allowable business expenses. You cannot claim both the trading allowance and expenses for the same trade. Compare the two methods using your own figures and keep evidence for whichever you claim.
A short comparison. Suppose your gross income is £1,400 and your allowable costs are £500. Claiming the £1,000 trading allowance leaves £400 before any other adjustments. Claiming the £500 costs leaves £900. In this example, the allowance gives the larger deduction. If your costs were £1,100, the actual expenses would give the larger deduction. These figures illustrate the comparison; they are not a tax calculation.
Some expenses may not qualify, so check HMRC's rules before claiming them. The choice can also depend on losses, other income and your circumstances; seek professional help if you are unsure.
When you need to tell HMRC
HMRC says you must send a Self Assessment tax return if you were self-employed as a sole trader and earned more than £1,000 before taking off anything you can claim tax relief on. This applies even when your expenses mean there is little profit, or no income tax to pay. Filing and paying tax are separate questions: the return reports the relevant income and lets HMRC work out what is due.
If your gross trading income is £1,000 or less, you generally do not need to tell HMRC about that income under this rule. You may still need to send a return for another reason, such as other untaxed income or a notice from HMRC. If HMRC has asked you to file, contact them if you think you do not need to.
A PAYE job does not use up your trading allowance. The allowance applies to your trading income; your wages continue to be taxed through PAYE. If your trading income is over £1,000, the sole-trader reporting rule can still mean you need to register and file alongside your employment.
How to register
Check whether you need to send a Self Assessment return, then register with HMRC for Self Assessment if you do. You generally need to tell HMRC by 5 October after the end of the tax year for which you first need to file. The exact steps depend on whether you have filed a return before and your circumstances.
If you need to file for the 2025/26 tax year and have not filed before (or registered previously but did not need to file for 2024/25), HMRC says to tell them by 5 October 2026. See our guide to first Self Assessment deadlines and payments on account for the dates and what happens after you register.
Use HMRC's registration service and follow its instructions. You will receive a Unique Taxpayer Reference (UTR); allow time for HMRC to process your registration. Do not wait until the filing deadline to start.
Common questions
Does £1,000 mean I can earn £1,000 tax-free?
The trading allowance can exempt up to £1,000 of trading income, subject to HMRC's rules. The threshold for telling HMRC is also based on gross income. Your wider tax position may affect whether you owe tax.
Can I subtract costs before checking the threshold?
No. Compare your gross trading income with £1,000 before deducting expenses. £1,400 of income remains over the threshold even if you had £500 of costs.
Can I claim the allowance and my expenses?
You cannot deduct both the trading allowance and other expenses or allowances for the same trade. Compare the available methods before you complete your return.
Does my salary use part of the allowance?
No. A PAYE job does not use up the trading allowance. Your employment and trading income are dealt with under their relevant tax rules.
This is general information, not tax advice. Sources: GOV.UK, Tax-free allowances on property and trading income; GOV.UK, Who must send a tax return; GOV.UK, Check how to register for Self Assessment. Figures and rules checked 24 September 2026. For a clear timeline, see the first Self Assessment deadlines guide. If helpful, see our products, including the Year-End Bookkeeping Workbook (£12 for both 2025/26 and 2026/27 editions) for organising records before Self Assessment, or use the free pricing calculator.