Trading Allowance 2026/27: The £1,000 Rule and How to Claim
The trading allowance is one of HMRC's simpler tax rules and one of the most practically useful for people with small amounts of self-employed or casual income. If your gross trading income in a tax year is £1,000 or less, you pay no tax and do not need to register as self-employed or file a Self Assessment return on that basis.
Written and reviewed by James Whitfield · Last reviewed 30 October 2026 · Checked against 2026/27 HMRC rates · Editorial standards · Methodology
Contents ▾
- 1. From 6 April 2027: the allowance rises to £3,000
- 2. Which option wins: allowance vs actual expenses
- 3. What the trading allowance covers
- 4. The two options when income is over £1,000
- 5. Which option wins at different income and expense levels
- 6. How to claim the trading allowance on Self Assessment
The trading allowance lets you earn up to £1,000 of gross self-employment income in a tax year with no tax to pay and no need to register or file a return.1 Go over £1,000 and you must register as a sole trader,3 but you then get a choice on your return: deduct a flat £1,000 instead of your actual expenses, or deduct your real costs — whichever leaves the lower profit. The rule of thumb: if your expenses are under £1,000, use the allowance; if they are over £1,000, claim actual costs.
- →Up to £1,000 gross: no tax, no registration, no return.1
- →Over £1,000: register as a sole trader by 5 October after the tax year.3
- →On your return, deduct £1,000 OR actual expenses — never both.1
- →There is a separate £1,000 property allowance you can also use.1
- →From 6 April 2027 the allowance rises to £3,000, and so does the limit for telling HMRC (Budget 2026; to be set in the Finance Bill 2026-27).4
Related: Employed and self-employed tax calculator · Register as a sole trader · Your first tax return · Earning under £12,570 · Where the allowance goes on your return · How much tax a sole trader pays · Budget 2026 for sole traders: the £3,000 allowance and what else changes
Enter a year's self-employment income before costs and what you spent running it. We compare the £1,000 allowance with your actual costs, using the same engine as our full calculator.
2026/27 rates for England, Wales and Northern Ireland. Income Tax and Class 4 NI only (no student loan or pension). Estimates for planning only, not tax advice.
- Earn up to £1,000 gross from self-employment tax-free, with no return needed.1
- The £1,000 test is on gross income, before expenses.1
- Over £1,000, choose the £1,000 allowance or your actual expenses — whichever is higher.1
- Break-even is simple: if costs beat £1,000, claim actual; if not, take the allowance.1
- A separate £1,000 property allowance runs alongside it.1
- From 6 April 2027: £3,000 instead of £1,000, for individuals (Budget 2026).4
Key figures
- The trading allowance is £1,000 for 2026/27. GOV.UK
- Budget 2026 announced a rise to £3,000 from 6 April 2027; it needs the Finance Bill 2026-27 to become law. Budget 2026 OOTLAR
Checked 30 October 2026.
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From 6 April 2027: the allowance rises to £3,000
Budget 2026 (28 October 2026) raises the trading allowance from £1,000 to £3,000 from 6 April 2027, and the Self Assessment reporting threshold for trading income rises to £3,000 at the same time.4 Both are to be set in the Finance Bill 2026-27. For the 2026/27 tax year, which ends on 5 April 2027, the limit stays £1,000.
The allowance is for individuals: a limited company can't use it. It covers casual (miscellaneous) income as well as trading income.
Example: a craft seller with £2,400 of sales and £300 of costs. In 2026/27 the £1,000 allowance leaves £1,400 to be taxed. From 2027/28 the £3,000 allowance covers all £2,400 of sales, so there is no tax on it and, with no other reason to file, nothing to tell HMRC.
| 2026/27 (to 5 April 2027) | £1,000 |
| From 6 April 2027 (2027/28) | £3,000 (Budget 2026) |
Which option wins: allowance vs actual expenses
Once you are over £1,000 the only question is which deduction leaves less profit to be taxed. It comes down to a single comparison: are your real business costs more or less than £1,000?
| Gross income £1,000 or less | No tax, no registration, no return |
| Over £1,000, actual costs under £1,000 | Use the £1,000 trading allowance |
| Over £1,000, actual costs over £1,000 | Claim your actual expenses |
What the trading allowance covers
The trading allowance of £1,000 per tax year applies to income from self-employment, casual trading, or providing services for payment — selling homemade goods, occasional freelance work, renting out equipment, gig economy income, and similar. It applies to the gross income from the activity, not the profit. If you earn £900 from occasional consulting work and have £200 in expenses, your gross income is £900 — within the allowance, no tax, no registration.
There is also a separate £1,000 property income allowance for rental income, which works similarly. The two allowances are independent — you can claim both in the same year. However, if you earn income as an employee or through PAYE, the employment income is not covered by the trading allowance. The allowance applies specifically to trading and casual income.
You can't use the allowance on your share of partnership trading income, or on income from your employer, your spouse's or civil partner's employer, a company you or someone connected to you owns or controls, or a partnership where you or a connected person is a partner. It also does not reduce the gross income figure for the purposes of determining whether you need to register as self-employed — if gross trading income exceeds £1,000, you must register regardless of whether you choose to use the allowance.
The two options when income is over £1,000
Once your gross trading income exceeds £1,000, you have a choice in how you calculate taxable profit on your Self Assessment return. Option one: claim the trading allowance and deduct £1,000 from your gross income instead of actual expenses. This is simpler — no need to track receipts or apportion costs. Taxable profit = gross income minus £1,000. Option two: deduct actual allowable business expenses in the normal way. Taxable profit = gross income minus actual expenses.
You can choose whichever method produces the better outcome, but you must be consistent within a single return for the same trading activity — you cannot mix the two methods for the same source of income. The choice can be made differently from year to year if circumstances change.
You cannot claim the trading allowance and actual expenses simultaneously for the same income source. If you choose the trading allowance, that is your full deduction. If your actual expenses are higher than £1,000, actual expenses will produce a lower taxable profit — so the choice has a direct impact on your tax bill.
Which option wins at different income and expense levels
If your gross income is £3,000 and actual expenses are £600: trading allowance gives taxable profit of £2,000; actual expenses give taxable profit of £2,400. Trading allowance is better — saves £400 in taxable profit, approximately £80 in tax at basic rate.
If your gross income is £5,000 and actual expenses are £1,800: trading allowance gives taxable profit of £4,000; actual expenses give taxable profit of £3,200. Actual expenses are better — saves £800 in taxable profit, approximately £208 in tax at combined income tax and Class 4 NI.
The break-even point is simply whether your actual business expenses exceed £1,000. If your costs are higher than £1,000, claim actual expenses. If your costs are lower than £1,000, claim the trading allowance. For very small income levels where expenses are modest, the trading allowance also saves the administrative effort of tracking and documenting every cost.
How to claim the trading allowance on Self Assessment
If your gross trading income is £1,000 or less, you do not need to register as self-employed or file a Self Assessment return purely on account of that income. If you have other reasons to file — untaxed income over £2,500, rental income, foreign income or the High Income Child Benefit Charge — you may still need to file, but you simply do not report the trading income at all (it is covered by the allowance).
If your gross trading income exceeds £1,000 and you choose to use the trading allowance, you report it in the self-employment section of your SA100 return. On the SA103 self-employment pages, you enter your gross turnover and put the allowance you are claiming in the trading income allowance box (box 10.1 on the short pages). HMRC's online filing system handles the deduction automatically when you indicate the allowance applies.
If you choose actual expenses instead, you complete the expense categories on the SA103 in the normal way — there is no interaction with the trading allowance. HMRC's system will not apply the allowance automatically if you have entered actual expenses, so you must actively choose one or the other.
Frequently asked questions
Does the £1,000 trading allowance reset each year?+
Yes. It is a per-tax-year allowance. You get £1,000 each year regardless of what you claimed in previous years.
Can I use the trading allowance on top of actual expenses?+
No. It is an alternative to actual expenses for the same income source. You choose one or the other — whichever produces the lower taxable profit.
What if I have both self-employed income and rental income?+
There is a separate £1,000 property income allowance. You can claim the trading allowance on self-employment income and the property allowance on rental income independently in the same tax year — they do not interact.
Does the trading allowance count toward the threshold for registering as self-employed?+
No. The £1,000 trading allowance is a tax relief, not a registration exemption above that threshold. Once gross income exceeds £1,000, you must register as self-employed by 5 October after the end of the relevant tax year.
Do I need to tell HMRC I am using the trading allowance?+
If your gross income is £1,000 or below, no action is required. If it exceeds £1,000 and you are filing Self Assessment, you indicate the allowance on the SA103 self-employment pages when completing your return.
Is the trading allowance going up to £3,000?+
Yes, from 6 April 2027. Budget 2026 (28 October 2026) raises it from £1,000 to £3,000 for individuals, and the Self Assessment reporting threshold for trading income rises to £3,000 too. It is to be set in the Finance Bill 2026-27. For 2026/27 the limit is still £1,000.
Sources & references
The rates, thresholds and rules in this guide are drawn from the official HMRC and GOV.UK sources below, using the confirmed 2026/27 figures. Each link opens the relevant official page in a new tab.
- Tax-free allowances on property and trading income www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income
- Self Assessment tax returns www.gov.uk/self-assessment-tax-returns
- Register for Self Assessment www.gov.uk/register-for-self-assessment
- Budget 2026: Overview of tax legislation and rates (OOTLAR), 28 October 2026 www.gov.uk/government/publications/budget-2026-overview-of-tax-legislation-and-rates-ootlar/budget-2026-overview-of-tax-legislation-and-rates-ootlar
Estimate your sole trader tax
The sole trader tax calculator turns this guidance into a concrete monthly take-home and tax reserve estimate, based on 2026/27 HMRC rates. Enter taxable profit — not turnover.