Trading allowance: the £1,000 rule for the self-employed

Plenty of people do a bit of paid work on the side and wonder if they have to tell HMRC. The trading allowance is the rule that answers that. It's a £1,000 tax-free slice of self-employed income, and it works in two very different ways depending on how much you earn.

This is the plain version of the trading allowance for the self-employed, using what GOV.UK says on its page about tax-free allowances on property and trading income, which I read this morning.

What is the trading allowance?

It's an allowance of £1,000 a year for trading income. GOV.UK says it covers income from self-employment, casual services like babysitting or gardening, and hiring out personal equipment such as power tools.

Trading income here means your gross income. That's what customers pay you, before you take off any costs. The figure is per person, per tax year, and a tax year runs from 6 April to 5 April.

It doesn't apply to trading income from a partnership.

Full relief: you earned £1,000 or less

If your gross trading income for the year is £1,000 or less, you get what GOV.UK calls full relief. You don't pay tax on it, and you don't need to tell HMRC, unless another condition applies.

You still have to keep records. GOV.UK gives examples: invoices, bank statements and a diary showing income from each customer.

Say you do a few weekend gardening jobs and customers pay you £850 across the year. That's under the line. No tax, no return, just keep the evidence.

Partial relief: you earned more than £1,000

Once your gross income goes over £1,000, you can choose how to work out your profit. You can deduct your real expenses, or you can deduct £1,000 instead. Not both. GOV.UK says that if you claim the allowance, you can't deduct other expenses or allowances against that income. It also says you can never deduct more than your income.

You also have to register for Self Assessment once gross trading income passes £1,000. GOV.UK gives the deadline as 5 October after the end of the tax year. So for the 2025 to 2026 tax year, that date has just gone. If you earned more than £1,000 and haven't registered, do it now. If you're about to start a business, our guide to making tax digital for sole traders shows where the rules are heading.

When the allowance saves you money, and when it doesn't

The allowance only wins if your real costs are below £1,000.

Here's an example. Say you're a tutor and customers paid you £3,000 this year. Your real costs were £200 for books and printing.

• Use the allowance: you deduct £1,000, so your taxable profit is £2,000.
• Use real expenses: you deduct £200, so your taxable profit is £2,800.

The allowance gives you a lower profit, so you'd pick it.

Now flip it. Say you're a cleaner with £6,000 of income and £2,500 of costs for supplies and van fuel. Real expenses leave you a profit of £3,500. The allowance would leave £5,000. Here you'd skip the allowance and claim your real costs.

The rule is simple. If your costs are under £1,000, take the allowance. If they're over £1,000, claim the costs.

Remember what you're comparing. The allowance affects the profit you pay income tax on. This article doesn't cover National Insurance. Check that separately on GOV.UK before you decide.

What's the tax on that profit?

GOV.UK lists the Personal Allowance for 2026 to 2027 at £12,570. That's the amount of income you don't pay income tax on. The basic rate of 20% applies to income from £12,571 to £50,270 in England. Scotland has different bands.

So a small side income on top of a job still counts toward your total income. The allowance trims the profit. It doesn't make the income invisible once you pass £1,000.

When you can't use it

GOV.UK says you can't use the allowance in a tax year if the income comes from:

• a company you or a connected person owns or controls
• a partnership where you or a connected person is a partner
• your employer, or your spouse's or civil partner's employer

If your only customer is your own limited company, for example, this doesn't help you.

Other reasons to register anyway

Even under £1,000, there are cases where registering makes sense. GOV.UK lists them: you've made a loss and want to claim relief, you want to pay voluntary Class 2 National Insurance, or you want to claim Tax Free Childcare or Maternity Allowance based on self-employment income. If you're new and expect £1,000 or less, you can also register voluntarily.

Keep your records from day one

The thing that trips people up isn't the allowance. It's the records. If your customers pay by bank transfer, your statement is already half the job. The trouble starts when payments come from five different people with no invoice and no note about what each was for.

I'd write down every job as it happens, even when you think you'll stay under £1,000. Once you pass it, you'll need the full year's total anyway. If you're thinking about the bigger picture, how to save for tax when you're self-employed covers setting money aside.

At Vcents, every payment request you send in WhatsApp is logged with the customer, the amount and the date. That gives you a running record without a spreadsheet. But whatever you use, keep one.

Sources

• GOV.UK, Tax-free allowances on property and trading income, read 11 October 2026
• GOV.UK, Income Tax rates and Personal Allowances, read 11 October 2026