UK Trading Allowance 2026/27: The £1,000 Tax-Free Side Hustle Rule Explained

What the trading allowance is and the 2026/27 figure

The trading allowance is a £1,000 annual tax exemption for individuals who earn money from self-employment, casual trading or certain other types of income. It was introduced by HMRC in April 2017 and the figure has remained at £1,000 for the 2026/27 tax year (6 April 2026 to 5 April 2027). It applies to your gross income, meaning the total you receive before any costs are taken off.

The practical effect is simple: if your total trading income across all self-employment activities is £1,000 or less in the tax year, you do not pay any Income Tax or National Insurance on it, and in most cases you do not need to register with HMRC or file a Self Assessment return. The allowance is fully legislated under the Finance (No.2) Act 2017, so this is not a grey area or a loophole. It is a deliberate relief designed for the modern gig economy.

For context on how this fits into the wider picture of earning extra money, our second income tax guide covers all the thresholds and obligations worth knowing.

Who qualifies and what counts as trading income

The trading allowance applies to individuals, not companies or partnerships. You qualify if you receive income from trading, casual services, or hiring out equipment. Examples include:

• Selling handmade goods online or at markets
• Freelance or casual services such as gardening, photography or tutoring
• Selling second-hand items on platforms like Vinted, eBay or Facebook Marketplace
• Dog walking, babysitting or odd-job work
• Renting out personal possessions such as tools or camera gear (not property, which has its own allowance)
• Delivery or driving gigs via apps

Income from employment (i.e. where you are on a PAYE payroll) does not qualify. Neither does income from a limited company you run, savings interest, dividends, or rental income from property. The allowance specifically targets sole trader and casual income. If you have several small side hustles, all the trading income is added together and measured against the single £1,000 threshold.

If you are curious which activities tend to generate small amounts that fall within this threshold, take a look at the best UK side hustles for 2026 for ideas.

When you must still register for Self Assessment even under £1,000

The trading allowance does not always mean you can ignore HMRC entirely. There are situations where you must still register for Self Assessment, even if your trading income is under £1,000.

You must register if HMRC sends you a notice to complete a return. Once you receive that notice, you are legally required to file, even if you have nothing to declare. You must also register if you are already within Self Assessment for another reason, for example because you have rental income, large investment gains, or your salary puts you above £100,000. In those cases, you can still claim the trading allowance on your return, but the return itself is still required.

There is also a subtler point: if HMRC has reason to believe you are trading regularly and earning more than you are declaring, they can open an enquiry regardless of the amount you report. The allowance is not a shield against scrutiny; it is simply a relief against tax owed. Keeping basic records is still wise.

For a fuller breakdown of registration thresholds and what triggers HMRC attention, the full HMRC side hustle tax guide covers the specifics in detail.

Trading allowance vs deducting actual expenses: which is better?

If your trading income exceeds £1,000, you have a choice. You can either claim the flat £1,000 trading allowance to reduce your taxable profit, or you can deduct your actual allowable business expenses instead. You cannot do both.

The trading allowance is simpler. You do not need to track or evidence any costs. If your actual expenses are less than £1,000, the flat allowance will save you more tax. For example, if you earned £1,800 from freelance work and your actual costs were only £300, claiming the trading allowance gives you a taxable profit of £800, whereas deducting actual expenses would give you a taxable profit of £1,500. The allowance clearly wins.

However, if your costs are high, actual expenses will often be better. A delivery driver earning £4,000 who spends £2,500 on fuel and insurance would be better off deducting real expenses, since the £1,000 allowance only cuts profit to £3,000 while actual expenses cut it to £1,500.

As a rough guide: if your expenses are under £1,000, use the trading allowance. If your expenses are materially above £1,000, deduct them properly. If they are close, do the maths both ways on your return before submitting.

How to claim the allowance on your SA103 Self Assessment return

If your trading income is under £1,000 and you are not otherwise required to file, you simply do nothing. No registration, no return, no claim needed.

If you are filing a Self Assessment return (either because you are required to or because your income exceeds the threshold), the trading allowance is claimed on the SA103 supplementary page, which is the self-employment short form. There is a specific box asking whether you want to use the trading income allowance. You tick yes and enter your gross income. HMRC's system then automatically applies the £1,000 deduction when calculating your taxable profit.

If you use HMRC's online Self Assessment system, the equivalent fields appear in the self-employment section. You will be asked whether your turnover was below the £1,000 threshold or whether you wish to claim the allowance. Answer accordingly and the calculation is done for you. If you use tax software or an accountant, make sure they know you want to use the allowance rather than deduct actual expenses, because the choice is yours to make.

The property allowance: a separate £1,000 and how both can stack

The property allowance is a separate £1,000 exemption that works in exactly the same way but applies to rental and property income rather than trading income. It is not the same as the trading allowance, and the two are entirely independent.

This means that if you have both a small side hustle and some rental income, you could potentially shelter £2,000 of gross income from tax altogether: £1,000 under the trading allowance and £1,000 under the property allowance. The allowances sit in different boxes on your Self Assessment return and do not interact with each other. Both are available in 2026/27 at the same £1,000 figure.

Note that the property allowance covers things like renting out a parking space, a garage, or occasionally letting a room through a platform. It does not replace the Rent a Room Scheme, which has its own separate rules and higher threshold. If you are renting out a furnished room in your own home, Rent a Room is likely more beneficial.

Common HMRC mistakes side hustlers make

The trading allowance is straightforward in principle but there are a few errors that HMRC regularly sees from people filing their first returns.

Confusing gross income with profit. The £1,000 threshold applies to gross income, not profit. If you sold £1,200 of items on Vinted but spent £400 on postage and packaging, your gross income is still £1,200. You have exceeded the threshold even though your profit was only £800. You would then choose whether to use the trading allowance (£200 taxable profit) or deduct actual expenses (£800 taxable profit).

Forgetting to add up multiple income streams. The allowance applies across all your trading income combined. If you earned £600 from Etsy and £500 from dog walking, your total is £1,100 and you have exceeded the threshold.

Assuming cashback and referral bonuses count as trading income. Most cashback earnings from sites like TopCashback or Quidco are not considered trading income by HMRC and the trading allowance does not apply to them. They are generally not taxable at all for personal use. Sign-up bonuses and referral payments from apps are usually treated similarly, but this can depend on the volume and regularity of the activity.

Failing to keep records. Even if you are under the threshold, it is sensible to keep a simple spreadsheet of what you earned and when. If HMRC ever asks questions, clear records resolve things quickly.

Worked examples: cashback, Vinted seller, freelance gig income

Cashback earner

Sarah uses several cashback sites and earns around £300 over the year through personal shopping. She also refers a few friends and receives £50 in referral bonuses. Neither amount is considered trading income by HMRC in the normal course of personal use, so the trading allowance is not relevant here. She owes no tax and does not need to file a return (assuming no other reasons to do so).

Vinted seller

James sells old clothes and household items on Vinted throughout the year and takes in £850 in total. This is under the £1,000 trading allowance. Provided he is selling personal possessions rather than buying stock to resell at a profit (which would be trading in a more formal sense), HMRC generally accepts this as within the allowance. James does not need to register or file a return. For more on this, see our guide on making money on Vinted.

Freelance gig worker

Priya does occasional freelance copywriting alongside her full-time job. In 2026/27 she earns £2,400 from freelance projects. Her actual expenses are £180 (a small amount of software and stationery). She decides to use the trading allowance instead, giving her a taxable profit of £1,400. She registers for Self Assessment, files an SA103, and pays Income Tax and Class 4 National Insurance on the £1,400. Claiming actual expenses would have left her with a taxable profit of £2,220, so the trading allowance saves her a meaningful amount.

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