What is Trading Allowance? UK Definition 2026/27
Quick Answer
A £1,000 tax-free allowance for self-employed income or casual trading.
Definition of Trading Allowance
The trading allowance lets you earn up to £1,000 from self-employment or casual trading without paying tax or reporting to HMRC. If your income exceeds £1,000, you can either deduct the allowance instead of actual expenses, or claim actual expenses as normal.
This is useful for side hustles, occasional freelance work, or selling items online. It's separate from your employment income.
Trading Allowance — Key Facts for 2026/27
| Allowance amount | £1,000 |
| No reporting needed | If income under £1,000 |
| Can use instead of | Claiming actual expenses |
| Property equivalent | £1,000 property allowance |
How Trading Allowance Works — Example
- 1Self-employed income: £2,500
- 2Actual expenses: £300
- 3Option 1: Use trading allowance
- 4Taxable profit: £2,500 - £1,000 = £1,500
- 5Option 2: Claim actual expenses
- 6Taxable profit: £2,500 - £300 = £2,200
- 7Best option: Use trading allowance (lower profit)
How Trading Allowance Affects Your Tax
The trading allowance simplifies tax for small-scale self-employment. If you earn under £1,000, you don't need to register for Self Assessment or report the income.
Official HMRC Guidance on Trading Allowance
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Trading allowanceFrequently Asked Questions about Trading Allowance
Related Tax Terms
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.