The trading allowance is a straightforward relief that's useful for anyone with small amounts of self-employment or casual trading income — a side hustle, odd jobs, occasional freelance work, selling items online. It doesn't get talked about as much as it should, and a fair number of people either don't know about it or misunderstand how it works.
What is the trading allowance?
The trading allowance is a £1,000 tax-free band that applies to income from self-employment, casual trading, and certain other income sources. If your total gross income from these sources in a tax year is £1,000 or less, you pay no tax on it and you don't need to notify HMRC or file a Self Assessment return on account of that income alone.
The allowance was introduced in April 2017 as part of a package to simplify the tax position for people with small amounts of casual income — things like selling second-hand items on eBay or Vinted, odd jobs for neighbours, small freelance projects, dog walking, or tutoring. Before 2017, even small amounts of trading income needed to be reported.
What counts as trading income for this purpose?
Trading income is broadly income from a trade, profession or vocation carried on by an individual — sole trader income, in other words. It also covers casual income that doesn't amount to a regular trade, and income from providing goods and services through digital platforms (gig economy work, online selling, Airbnb in certain circumstances).
It does not cover employment income, investment income, or rental income from property — there's a separate property income allowance of £1,000 for that. And it doesn't cover income that your employer pays you or income channelled through a partnership.
When your income exceeds £1,000
Once your gross trading income goes above £1,000, you need to register for Self Assessment and declare it. At this point, you have a choice of how to calculate your taxable profit:
Option 1 — Use the trading allowance: Simply deduct £1,000 from your gross income. Your taxable profit is income minus £1,000. No need to record or calculate actual expenses.
Option 2 — Claim actual expenses: Calculate your taxable profit in the normal way: income minus allowable business expenses. This is the standard approach most self-employed people use.
You choose whichever gives the lower taxable profit — or, more precisely, whichever you prefer to use. You cannot use both options for the same income stream, and once you've chosen to apply the trading allowance (rather than actual expenses) for a tax year, that's your basis for that year.
The trading allowance makes most sense where your actual costs are very low relative to income. If you earn £5,000 from freelance work and your actual expenses are only £200, using the trading allowance gives you a taxable profit of £4,000 rather than £4,800 — a straightforward £800 saving in taxable profit. But if your costs are £1,500, you'd be better off claiming them than using the £1,000 allowance.
The eBay and online selling question
A question that's come up increasingly since HMRC and digital platforms started sharing data: does selling your personal belongings on eBay, Vinted or Depop count as trading income that needs to be declared?
The answer is nuanced. Selling genuinely personal items you no longer need — your old clothes, books, household items — is not trading and is not subject to income tax. There's no threshold for this; you're just disposing of personal property. However, if you're buying items specifically to resell for profit, or if you're making items to sell, that is trading and the trading allowance applies in the same way as any other self-employment income.
From January 2024, platforms like eBay and Vinted are required to report sellers' income to HMRC if they make more than 30 sales or earn over €2,000 in a year. This doesn't automatically mean you owe tax — it just means HMRC can see the data. If your sales are of personal belongings, you have nothing to worry about. If you're running a trading operation, the trading allowance and Self Assessment obligations apply.
The property income allowance
Separately, there is also a £1,000 property income allowance for income from renting property, land, or assets. This works the same way as the trading allowance — income below £1,000 from property doesn't need to be declared; income above £1,000 gives you the choice of using the allowance or actual expenses.
The two allowances are separate. You can use both in the same year if you have both trading income and property income — up to £1,000 of each tax-free.
National Insurance and the trading allowance
Profits below the Small Profits Threshold (£6,845 for 2026/27) do not generate Class 4 NI. Using the trading allowance reduces your taxable profit, which could push you below the NI threshold and eliminate a NI liability. However, if your profit falls below the Small Profits Threshold, you should consider making voluntary Class 2 NI contributions to protect your State Pension record if you're relying on self-employment as a significant part of your work.