Updated on 6 April 2026

Trading allowance

The trading allowance is available to those with trading and/or miscellaneous income. The allowance is sometimes also known as the trading and miscellaneous income allowance, or hobby allowance. On this page, we look at when you are entitled to the trading allowance and how it is applied.

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How it works

The trading allowance is a tax free allowance which can be used by individuals for casual and/or miscellaneous income of up to £1,000 per tax year. The allowance can be used against any trading, casual or miscellaneous income and means that you do not pay tax or National Insurance on the income that is covered by the allowance. This might include income from what is often known as the ‘sharing economy’ – for example, car sharing – or perhaps against income arising from hobby activities which are in the process of developing into a more commercial business. It might also be relevant to those working in the gig economy.

You can use the trading allowance as well as the personal allowance. It is not an automatic allowance like the personal allowance and so may need to be specifically claimed in some circumstances.

You are entitled to claim the trading allowance for trading income if either:

you use the cash basis of accounting, or
you use traditional accounting (also called the accruals basis) but are eligible to use the cash basis.

The trading allowance is available even if you have only traded for part of the tax year. For example, if you started to trade in February 2026 you would still be able to claim the full amount of the trading allowance as if you had been trading for the entire 2025/26 tax year.

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If your trading income is £1,000 or less

In this section we will now refer to trading income to cover trading, casual and miscellaneous income.

If your total (gross) trading income in the tax year is £1,000 or less, then the whole of this income can be covered by the trading allowance. This is known as full relief. You should be able to calculate your total gross income from your business records for your self-employment.

Example – trading allowance full relief

Amos sold some home-made jam for £250 and hired out some garden tools for £125 during the 2025/26 tax year. The total of his trading and casual income is £375. As this is below the trading allowance limit of £1,000, he can use £375 of the allowance.

It is important that you look at total (gross) trading income to see if it is £1,000 or less. We explain under the heading Gross trading income below when you might find it difficult to identify your ‘gross’ trading income, particularly if some expenses such as platform selling fees are deducted before the income is paid into your bank account.

If the trading allowance is more than the trading income, no trading loss is created.

If this is your only income, you do not need to make a formal claim for the allowance. If your ‘trading income’ is from trading (rather than from casual or miscellaneous sources) so you are self-employed you do not need to register your self-employment with HM Revenue & Customs (HMRC) or complete a tax return. If you are already registered to complete a tax return, then contact HMRC to see if you still need to complete it.

However, there may be circumstances where you are self-employed and still want to register for self-employment, even if you don’t have to, for example:

because you want to pay voluntary Class 2 National Insurance contributions (you may want to do this to build up your entitlement to certain state benefits, such as the state pension, maternity allowance and contribution-based employment and support allowance),
because you want a record of your self-employment for maternity allowance, or
because you would like to claim tax-free childcare.

If you need to complete a self assessment tax return for another reason (see Who has to complete a tax return), then if you are self-employed you can choose to enter your trading allowance amount in the self-employment section of the tax return to show the amount you are claiming.

You must keep records of your trading income so you can work out whether you are entitled to use the trading allowance. It is also useful to keep records of your business expenses so you can work out if you want to use the trading allowance if you have total trading income over £1,000 (see the heading below, If your trading income is more than £1,000) .

If you are self-employed and required to follow the new Making Tax Digital for Income Tax rules from April 2026 then see our information on how the trading allowance affects the digital record keeping requirements on our page Making Tax Digital for the self-employed. Please note that even if you do not have to report this income to HMRC you may still need to report it for some means-tested benefits, such as universal credit.

If your trading income is more than £1,000

In this section we will now refer to trading income to cover trading, casual and miscellaneous income.

If your total gross trading income (before deducting any expenses) in the tax year is more than £1,000 you can choose to deduct the trading allowance from the trading income instead of deducting your actual expenses. For example, if you are self-employed then instead of deducting your business expenses for the period you could deduct the £1,000 trading allowance.

If you do this, the taxable profit from the activity will simply be the total income less the trading allowance. Claiming the trading allowance in this way is called partial relief.

Example – trading allowance partial relief

Sarah has total income of £1,700 from selling home-baking at local monthly farmers markets in 2025/26, and she decides to claim the trading allowance. Her taxable profit from this activity is £700.

It may be beneficial to claim the trading allowance in this way if you do not have very high expenses related to the activity. It also means that you do not need to prepare any formal business accounts for tax purposes.

Example – claiming trading allowance partial relief instead of expenses

Ilsa runs a dog-walking business and she made £1,400 during the 2025/26 tax year and had expenses of £150. Ilsa can claim the trading allowance of £1,000 instead of her business expenses of £150 (she cannot claim both!) and her taxable income will only be £400 instead of £1,250.

If you are claiming partial relief, then you will not be able to claim tax relief for any pre-trading expenditure, if you are self-employed.

If you are self-employed, it will still be necessary to keep business records as you will need to know what your trading income is, and it is helpful to know what your business expenses are to be able to work out whether you wish to claim the trading allowance.

.If you are self-employed (so not just earning casual/miscellaneous income), as your self-employment income is above the trading allowance, HMRC say you must register your self-employment and complete a tax return.

For self assessment tax returns you enter the trading allowance in the self-employment section of the tax return. If you need to register for self assessment for the first time due to trading income from a self-employment trade (so not casual income/ miscellaneous income), see our page Self-employment: registering for tax and NIC. If you have casual and/or miscellaneous income above £1,000 then you should include the income after deducting the trading allowance in box 17 on SA100.

Please note that if you claim universal credit then you need to report your actual income and expenses and ignore the trading allowance for universal credit purposes. See the heading Universal credit below.

Gross trading income

Gross trading income means all your trading, miscellaneous and casual income before taking off any expenses.

Identifying the ‘gross’ amount of income can sometimes be tricky, particularly if charges are deducted before you receive the income, for example when it is paid directly into your bank account. Examples of such charges could be selling fees or transaction costs charged by a platform or even tax withheld under the Construction Industry Scheme (CIS).

Example – working out gross income

Gabby is self-employed and receives a payment of £892.50 direct to her bank account from a website which sells her craft goods. However, the website charges 15% fees to sell Gabby’s products and they take this from the income from the sale of her goods before they pay her.

Gabby’s actual sales are £1,050 therefore the website fees are 15% of £1,050 = £157.50. So the amount she receives into her bank account is:

£1,050 - £157.50 = £892.50

Because Gabby’s gross trading income of £1,050 is more than £1,000, Gabby is not eligible for full relief trading allowance. HMRC will expect her to register for self-employment and complete a tax return. She can still claim the trading allowance on her tax return (instead of her actual expenses) which will reduce her taxable trading income to £50 (£1,050 - £1,000 =£50).

Be extra careful when using apps to track your income, expenses and manage income tax.

If the app picks up the information directly from your bank account, there is a possibility it will record income which has had expenses deducted before it is paid into the bank (such as the 15% selling fees in the example of Gabby above). The app will then produce an inaccurate calculation of your gross income which could lead to an incorrect claim for the trading allowance.

More than one source of trading income

If you have more than one type of trading, casual or miscellaneous income you can still only claim one trading allowance. However, you can choose how to allocate the allowance between your income sources. This is best illustrated by the examples of Reece and Jay below. But remember you cannot claim tax relief for expenses when you claim the trading allowance, so the effect of this needs to be considered too. It may not be beneficial to claim the trading allowance at all.

Example – trading allowance with two sources of income

Reece has recently started self-employment running his own web design business. He also buys items to then resell using an online auction website from time to time. During the 2025/26 tax year his income and expenses were as follows:

Web design business:

Income £2,400

Expenses £700

Online auction sales:

Income £1,100

Expenses £900

Reece can choose how to use the trading allowance. His options are:

Claim the allowance against the web design income. This would mean he would have a taxable profit of £1,400 from this source. But his profit from the online auction sales is £1,100, as he cannot deduct the expenses of £900 if he claims the trading allowance. His total profits liable to tax and National Insurance contributions are £2,500.
Claim the allowance against the online auction sales. This would mean his taxable profit from this source would be £100. His profit from the web design business is £2,400, as he cannot deduct expenses of £700 if he claims the trading allowance. His total profits liable to tax and National Insurance contributions are £2,500.
Not claim the trading allowance at all. This would mean he has taxable profit of £1,700 from the web design business and £200 from online auction sales. His total profits liable to tax and National Insurance contributions are £1,900.

In this case, if Reece chooses not to claim the trading allowance, it gives him the lowest taxable profits overall.

Example – trading allowance with more than one source of income

Jay is self-employed as a graphic designer and has sales of £25,000 and expenses of £1,500 for the 2025/26 tax year, making a profit of £23,500. She also makes gift cards and has sales of £900 and associated business costs of £800.

Jay does not realise that the trading allowance must be applied to all her self-employed activities and makes a claim for the trading allowance against her card-making business on her tax return. However, this is incorrect. By claiming the allowance she is only entitled to get a deduction for £1,000 rather than her actual expenses of £2,300 (£1,500 + £800). Therefore, unless she amends her tax return, she will miss out on tax relief on £1,300 of business expenses (£1,500 + £800 = £2,300 less £1,000 allowance = £1,300). Assuming Jay is a basic rate taxpayer, this could cost her extra tax of £260 as well as extra Class 4 National Insurance contributions.

If you are self-employed and the trading allowance is not relevant to you, then you will need to prepare a set of accounts for your business and then consider making tax adjustments for business expenses that are not ‘allowable’ and for capital allowances. Our calculating self-employed profits guidance explains the process in more detail.

Reasons not to claim

It may not be beneficial to claim the trading allowance in certain circumstances. These include:

You have expenses greater than £1,000. In this case, you will have less taxable profit if you deduct your expenses from your trading income rather than the trading allowance and therefore will pay less tax.
You have made a trading loss in your self-employment. If your expenses are greater than your income, it will be beneficial to complete a tax return and make a claim for the losses rather than use the trading allowance. You cannot use the trading allowance to make a loss.
You have more than one trading business and/or type of casual income. In this case you need to ensure that your total expenses are less than £1,000 otherwise you could end up paying more tax (see the examples of Reece and Jay under the heading More than one source of trading income, above).

Incorrectly claimed the trading allowance

As explained under the Gross trading income heading above, it may be the case that the income you receive has had amounts taken off before you received it and so it could be different to your gross income for the trading allowance. If you (or your app) have taken the amount from your bank statements as gross trading income, this might have been incorrect when working out how the £1,000 trading allowance applies.

If you have claimed the trading allowance incorrectly, perhaps by using full relief when your gross income is actually above £1,000, as in the example of Gabby above, then you need to make sure you correct your tax position as soon as possible.

For example, if you are self-employed this may mean you have to register your self-employment with HMRC and complete a tax return to declare the income. There may be penalties if you have missed the deadline for telling HMRC that you need to complete a tax return. If you are in this position and on a low income, you may want to contact TaxAid for help in getting your tax affairs up to date.

If you already complete a tax return for other reasons and claimed ‘full relief’ using the trading allowance by mistake, you will need to amend your tax return to include this income. You can however, then claim ‘partial relief’ of the trading allowance instead of actual expenses as explained under the heading If your trading income is more than £1,000, above.

You will also need to amend your tax return if you have incorrectly claimed ‘partial relief’ against income that has already been reduced by actual expenses as shown in the example below.

Example – amending tax return due to incorrect trading allowance claim

In the 2024/25 tax year, Madison received self-employment income in her bank account from online sales of £2,000. She worked out that her actual expenses she directly paid out were £800. Because the £1,000 trading allowance is more than the £800 expenses, she claimed trading allowance ‘partial relief’. This meant her taxable profit was £1,000 (£2,000 income minus the £1,000 trading allowance). She put this on the tax return she submitted to HMRC.

After reading this guidance, Madison looks back at her £2,000 sales and realises that this was the amount she received in her bank account and there had been £400 in platform fees taken off before she received it. This means her gross trading income was £2,400. Madison’s total expenses were £1,200 – the £400 platform fees plus the other £800 expenses she had already included when preparing her accounts.

This means that Madison’s 2024/25 tax return should have shown total gross trading income of £2,400, minus £1,200 expenses, which leaves a profit of £1,200. Actual expenses should have been claimed instead of trading allowance partial relief as the actual expenses of £1,200 are more than the £1,000 trading allowance. Madison’s profit was therefore £200 higher than the £1,000 she put on her tax return. She needs to amend her 2024/25 tax return.

Universal credit

For Universal credit the trading allowance must be disregarded. Therefore, you must provide the details of the actual income and expenses to the Department for Work & Pensions (DWP) when claiming universal credit. This is likely to mean that the income used when calculating your universal credit will be higher than the income used when calculating your income tax.

Example – effect of the trading allowance for tax and universal credit

Thea has income from hairdressing of £3,000 and expenses of £425, making an accounting profit of £2,575. For income tax purposes she will be entitled to partial relief trading allowance and so her taxable income is £2,000 (£3,000 less £1,000).

However, if Thea was receiving universal credit, then she would have to report income received less expenses paid out in her monthly assessment period. The trading allowance would be completely disregarded in calculating her universal credit award and would make no difference to the figures she needs to report to the DWP for universal credit purposes.

Student loan repayments

If you claim the trading allowance and you are repaying your student loan, then the income used to calculate your student loan repayments will be the amount after the trading allowance has been deducted.

In other words, the calculation of your loan repayments follows the tax treatment of your trading and casual income as shown in the example below.

Example – student loan repayments and the trading allowance

Molly has a Plan 2 student loan, she earns £29,000 from her employment as well as some casual income of £750 which is fully relieved by the trading allowance. When HMRC calculate Molly’s student loan repayments they will use her employment income only when looking at the Plan 2 repayment threshold, so only the £29,000 and not £29,750.

More information

Our guide to self-employment is intended to supplement the material in this section. We wrote this guide to help advisers (non-tax) who advise low-income self-employed individuals and for self-employed people who want more detailed information in one accessible place. The guide explains the less common tax rules and contains more detailed information, including a case study showing how to prepare accounts, what to include on your 2025/26 tax return, how to treat pre-trade expenses and how to use the cash basis.

We cover examples of miscellaneous income on our taxable income page.

GOV.UK has information on keeping business records if you claim the trading allowance and there is further information on the trading allowance on HMRC’s Business Income Manual on GOV.UK.