If you earn a bit on the side in the UK, the trading allowance is the single rule that decides whether you can ignore it at tax time or have to tell HMRC. It is simple in principle and easy to trip over in practice. Here is exactly what it covers, how it is measured, and the mistakes that catch people out in 2026.
What the trading allowance actually is
The trading allowance is a tax-free allowance of GBP 1,000 a year on trading and casual income (source: GOV.UK trading allowance guidance). If your total gross side income for the tax year is GBP 1,000 or less, you do not need to declare it or pay tax on it. It is designed so that occasional sellers and small side earners are not dragged into Self Assessment for pocket-money amounts.
The three things people get wrong
- It is one allowance, not one per activity. Selling clothes on a marketplace, a bit of freelance work and some dog walking all count toward the same GBP 1,000. You do not get a fresh GBP 1,000 for each thing you do.
- It is measured before expenses. The threshold looks at gross income, not profit. Take GBP 1,100 in sales and spend GBP 200 on postage, and you have crossed the line on the GBP 1,100, even though your profit was GBP 900.
- It is separate from your salary. The allowance applies to the side income itself. Your day-job pay is dealt with under PAYE and does not use up the trading allowance.
A quick comparison
| Your gross side income for the year | What you need to do |
|---|---|
| GBP 1,000 or less | Nothing. The trading allowance covers it, tax-free. |
| More than GBP 1,000 | Register for Self Assessment and report the income. You can deduct the GBP 1,000 allowance or your actual expenses, whichever is better for you. |
Allowance or expenses: pick the better one
Once you are over the threshold, you have a choice. You can either claim the GBP 1,000 trading allowance and pay tax on income above it, or claim your actual business expenses instead. If your real costs are less than GBP 1,000, the allowance usually wins. If your costs are higher, deducting them is usually better. You cannot do both on the same income, so run the numbers each way.
The GBP 3,000 headline is not law yet
You may have read that the reporting threshold is rising to GBP 3,000. As of April 2026 that change has been proposed but is not yet law. Until it is, the GBP 1,000 gross trading allowance is what applies. Plan around the rule that is actually in force, not the one that might arrive later.
Keep it clean from day one
- Log every pound of side income, gross, from 6 April.
- As soon as the year looks likely to pass GBP 1,000, register for Self Assessment.
- Keep receipts so you can compare the allowance against your real expenses.
- Remember digital platforms report seller earnings to HMRC, so accurate records protect you.
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Get the Side Hustles Playbook, GBP 6.99Frequently asked questions
What is the trading allowance in the UK?
A tax-free allowance of GBP 1,000 a year on trading and casual income. Under that total, gross, you do not need to declare it.
Is it measured before or after expenses?
Before expenses. It is based on gross income, so GBP 1,100 of sales with GBP 200 of costs still counts as GBP 1,100 against the allowance.
Is it rising to GBP 3,000?
A higher reporting threshold has been proposed but is not yet law as of April 2026. The GBP 1,000 allowance still applies.