What is the trading allowance?

In 2026-27 the trading allowance lets you have £1,000 of self-employed income tax free. Earn £1,000 or less and you may not need to tell HMRC; earn more and you can deduct £1,000 instead of your expenses.

It has existed since 6 April 2017 and covers income from self-employment, casual jobs such as gardening, and hiring out your own equipment, such as power tools. The rules below follow GOV.UK as checked on 16 October 2026.

Two ways it works

Gross means everything you earned from the work before taking off any costs or allowances, whichever accounting method you use.

When it pays to use it

For many working trades it doesn't. A plumber, electrician or builder with a van, tools and materials often spends more than £1,000 a year, and then claiming real expenses gives a bigger deduction. A labour-only subcontractor with few costs should compare both.

It helps when your costs are small:

• a weekend side job where the customer supplies the materials
• occasional work using tools you already own
• hiring out a mixer or a trailer now and then

Example: you earn £3,000 from weekend tiling jobs and spend £300 on adhesive and blades. Claiming expenses leaves £2,700 of profit; taking the allowance leaves £2,000. The allowance wins by £700 of taxable profit. If you had spent £1,500 on materials, expenses would win. This is an example only. Your own figures will differ.

When you cannot use it

GOV.UK says you cannot use the allowance in a tax year if you have trading income from:

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

It also does not apply to income from a partnership.

Telling HMRC

• Gross trading income over £1,000: if you're not already registered, register for Self Assessment by 5 October after the end of the tax year.
• £1,000 or less: you usually don't need to. You'll need to register if you made a loss and want relief for it, or want to pay voluntary Class 2 National Insurance, claim Maternity Allowance or claim Tax-Free Childcare based on your self-employment.

Either way, keep a record of what you were paid: invoices, bank statements, a spreadsheet or a diary all count.

Steps to decide

1. Add up everything you earned from the work in the tax year (6 April to 5 April), before any costs.
2. If it is £1,000 or less and none of the exclusions above apply, keep your records and use the free tax return checker to see whether you need to register at all.
3. If it is more, add up your real costs for that work: materials, tools, travel, phone and the business share of anything you use privately, plus any capital allowances, because the £1,000 replaces all of them.
4. Compare the two. If your costs are under £1,000, the allowance gives the lower profit; if they are over, claiming the costs gives the lower profit.
5. On a tax return, the allowance goes in its own box on the self-employment pages, in place of the expense boxes.
6. Keep the records either way. HMRC can charge a penalty if records are not accurate, complete and kept for long enough.

What this means for you

If your trade is your main income, your costs are likely to be over £1,000, so claiming them usually gives the lower profit. Check both. If you do a bit of work on the side with few costs, the allowance can mean less tax and less paperwork. Making Tax Digital (MTD) looks at your income before costs, so the allowance does not change whether or when MTD starts for you.

Use the free MTD check to see when MTD starts for you, and the trades section for more guides on running a trade.