TaxWiz Logo
Updated for 2026/27
Fact Checked

The £1,000 Trading Allowance: Your 'Free' UK Tax Pass

Everything you need to know about the UK's £1,000 Trading Allowance. Learn how to skip paying tax on your side hustle legally and when to claim it.

T

TaxWiz Editorial

Tax Content Writer • Modified 2026-04-03

Allowance Checker

Are you over or under the limit? Find out instantly if you need to pay tax on your side income this year.

Open Trading Allowance Checker

What is the Allowance?

The Trading Allowance was created by HMRC to simplify the lives of people with small, casual side-hustles. In plain English, it is a £1,000 tax-free bucket for money you earn outside of your regular job.

The Short Answer

If you make under £1,000 in GROSS income, you pay £0 tax.

You don't even need to tell HMRC about the money. You can just keep it. It doesn't matter if you have a full-time job or not; this allowance is yours to use every single tax year.

When Does it Apply?

The allowance is extremely flexible. It applies to almost any form of "trading" or casual income.

You can use the allowance for:

  • Selling items on platforms like Vinted, eBay, Etsy or Depop
  • Freelance services like tutoring, gardening, or graphic design
  • Casual services like pet sitting or car washing
  • Digital income from YouTube ads or affiliate links

Wait! It does not apply to:

  • Rental income from a property (there is a separate Rent-a-Room allowance for that)
  • Dividends from shares
  • Selling your own personal second-hand items at a loss (these are already tax-free!)

The Taxpayer's Choice

Once your income crosses the £1,000 mark, you have a strategic decision to make. You can either deduct your actual expenses (receipts) or the £1,000 allowance.

Real Example: Liam

Liam earned £2,500 selling 3D printed models, but his materials only cost him £200.

Total Sales (Revenue)£2,500
Option A: Actual Expenses-£200
Option B: Trading Allowance-£1,000
Liam's Taxable Profit£1,500

Takeaway: Liam should use the Trading Allowance. It lets him deduct £1,000 'conceptually' instead of his actual £200 cost, saving him tax on £800.

Common Mistakes

Even though the rules are simple, many people get tripped up on the definitions.

Avoid These Traps
  • The Gross Income Trap: Forgetting that 'income' means the absolute total before you subtract fees or postage.
  • The Partnership Myth: Thinking you can split your income with your partner to get a £2,000 allowance (The allowance is personal to you).
  • The Dual-Deduction Error: Trying to claim both the £1,000 allowance AND your equipment costs (You must pick one or the other).

Your Next Step

If you've crossed the £1,000 mark and need to file for the first time, your journey starts with registration.

Feeling Ready?

  1. Check if you definitely need to register in our Do I Need to Register? checklist.
  2. If yes, follow our How to Register guide to get your UTR number.
  3. Start tracking your Allowable Expenses today to see if they end up being more than £1,000.
Go to Registration Guide

Frequently Asked Questions

It is per person. If you have an Etsy shop and also do dog walking, you must add both income sources together. The £1,000 limit applies to the combined total.
Yes, but you can't use both your 'actual expenses' and the £1,000 allowance for the same business. You have to pick whichever one saves you more money.
Yes. HMRC recommends keeping simple records of your sales to prove that you remained under the £1,000 threshold in case they ever audit you.

Tax Disclaimer: TaxWiz provides general educational information and guides for UK residents. While we strive to maintain accuracy for the 2026/27 tax year, tax rules are subject to change. This content does not constitute regulated financial, legal, or tax advice. For complex situations, we strongly recommend consulting a qualified UK accountant. View our full Disclaimer.