The trading allowance explained
What the £1,000 trading allowance is, when you can use it and how to compare it with claiming your actual expenses.
What is the trading allowance?
GOV.UK says you can get up to £1,000 a tax year for trading income, and a separate £1,000 for property income. If you have both, you get an allowance for each.
If your trading income is £1,000 or less
GOV.UK says trading income of £1,000 or less may not need to be reported to HMRC. You must still keep records of it.
If your trading income is more than £1,000
You can use the allowance instead of claiming expenses. GOV.UK calls this partial relief: the allowance reduces your income by up to £1,000, and never by more than your income. You cannot deduct any other expenses if you claim it. So you can choose, and the lower taxable profit is the better route for you.
A worked example
Imagine a sole trader with £3,000 of trading income in 2026-27.
- With £400 of actual expenses: claiming the expenses gives a taxable profit of £2,600. Using the allowance gives £2,000. The allowance leaves the lower profit.
- With £1,500 of actual expenses: claiming the expenses gives £1,500. Using the allowance gives £2,000. Claiming the expenses leaves the lower profit.
The break-even point in this example is expenses of £1,000. Above that, claiming actual expenses gives the lower profit. Below it, the allowance does.
When you cannot use it
GOV.UK says you cannot use the allowances for trade or property income from:
- a company you or someone connected to you owns or controls
- a partnership where you or someone connected to you are partners
- your employer, or your spouse's or civil partner's employer
The trading allowance also does not apply to partnership income.
Check your own figures
The SavingTax app has a free Trading allowance checker that compares the allowance with your actual expenses, and a trading allowance guide. If you also have property income, there is a property allowance guide.
Sources
This page is general information, not financial, tax or legal advice. The examples are simplified. Your own position depends on your circumstances. For advice, speak to a qualified professional.