Scope: This guide covers the UK trading allowance for individuals with qualifying trading or casual-services income in the 2026 to 2027 tax year. The property allowance is separate, even though HMRC explains both on the same page.
The short answer
The trading allowance is up to £1,000 for a tax year. The threshold test uses annual gross qualifying income before expenses, not profit. Gross income from the relevant trades is considered together.
If combined gross qualifying income from one or more trades does not exceed £1,000, full relief may mean the income does not need to be declared, but exclusions and reasons to register still have to be checked. If gross income exceeds £1,000, partial relief can deduct up to £1,000 instead of actual expenses and other allowances. It is not an additional deduction on top of those expenses.
Start with gross income, not profit
“Gross” means the amount before allowances or expenses are taken off. A person with £1,200 of sales and £500 of costs has gross income of £1,200 for this test, not a £700 profit. Because £1,200 exceeds the allowance, the full-relief threshold is not met.
Where there is more than one qualifying trade or casual activity, do not apply a fresh £1,000 allowance to each one. HMRC’s guidance and the statutory framework apply the individual’s trading allowance against relevant income for the tax year.
Full relief and partial relief
| Position | General effect |
|---|---|
| Combined gross qualifying trading income from one or more trades is £1,000 or less | Full relief may apply, subject to exclusions and any reason a return is still required. |
| Gross qualifying trading income exceeds £1,000 | Partial relief may deduct up to £1,000 instead of actual expenses and other allowances. |
| Actual allowable expenses produce a better result | Claiming actual expenses may be preferable; the allowance and actual expenses cannot both be deducted from the same income. |
| Income falls within an exclusion | The trading allowance cannot be used for that income. |
“Tax-free side hustle” is therefore an unsafe shortcut. The first £1,000 is not automatically ignored in every situation, and the test is not based on cash left after costs.
Worked examples
Example 1: gross income below the allowance
Nadia receives £800 from qualifying casual gardening services in 2026 to 2027. Her gross income for the threshold is £800 before costs. Full relief may apply because the amount is no more than £1,000, but Nadia still checks the exclusions and whether she has a reason to complete a return. She keeps an income record.
Example 2: comparing partial relief with actual expenses
Ben receives £2,400 from a qualifying trade and has £600 of potentially allowable expenses. Using partial relief would leave £1,400 after deducting the £1,000 allowance. Using £600 of actual expenses would leave £1,800. On these simplified figures, partial relief produces the lower amount, but Ben must verify that the income qualifies and cannot deduct the £600 expenses as well.
Now change the potential expenses to £1,500. Actual expenses would leave £900, while partial relief would still leave £1,400. On those simplified figures, actual expenses may be preferable. The example does not decide whether a particular cost is allowable or calculate Income Tax or National Insurance.
When the allowance cannot be used
The allowance does not apply to partnership trading income. It also has exclusions where trade or property income comes from a company controlled by the individual or a connected person, a partnership involving the individual or a connected person, or the individual’s employer or the employer of their spouse or civil partner.
These rules are designed around the source and relationships behind the income. Do not rely only on the payment description. For example, an amount labelled “freelance” from an employer still needs the employer exclusion checked.
When a return may still be needed
Even where gross qualifying income is no more than £1,000, HMRC says registration and a return may still be relevant where a person wants to claim loss relief, make voluntary Class 2 National Insurance contributions to help qualify for benefits, or make specified claims such as Tax-Free Childcare or Maternity Allowance based on self-employment.
The trading allowance can therefore affect the income calculation without eliminating every filing reason. If registration is required, follow the official self-employment registration steps.
Records still matter
Keep records of the trading income even when full relief applies. HMRC gives examples including invoices, receipts, spreadsheets, payment-platform statements, bank records and diaries showing customer income.
If comparing the allowance with actual expenses, also keep the expense evidence and calculation used to make the choice. A record of gross receipts is essential because the threshold is measured before expenses.
Common mistakes to avoid
- Testing the £1,000 amount against profit rather than gross receipts.
- Claiming £1,000 separately for each small trade.
- Deducting both the allowance and actual expenses from the same income.
- Using the allowance against partnership trading income.
- Ignoring connected-company, partnership or employer exclusions.
- Discarding records because the income is within full relief.
- Assuming the allowance removes a reason to file for loss relief, voluntary Class 2 contributions or a relevant benefit claim.
What to do next
- Add together gross receipts from qualifying trading activities for the tax year.
- Check the exclusion rules before applying any allowance.
- If gross income is no more than £1,000, check whether full relief applies and whether a return is still needed.
- If it exceeds £1,000, compare partial relief with actual allowable expenses.
- Keep the income records and the calculation supporting the chosen treatment.
- Use the official registration route where required.