The Trading Allowance is a £1,000 tax-free allowance for UK trading or miscellaneous income — side hustles, casual work, hobby income. If your gross trading income is under £1,000 for the tax year, you don't need to declare it or pay tax. Above £1,000, you choose: deduct £1,000 as a simple allowance, OR deduct actual expenses. Whichever is higher.
When the Trading Allowance applies
It covers any UK trading income that isn't already taxed through PAYE. Common scenarios:
- Selling on Etsy, eBay, Vinted, Depop, Amazon Handmade
- Freelance writing, design, photography, tutoring
- Dog walking, pet sitting, babysitting
- Renting a parking space (not residential property)
- OnlyFans, Twitch streaming, YouTube AdSense, sponsored content
- Cash-in-hand casual work
The £1,000 is per person, per tax year — gross income, not profit. Two people running a joint Etsy shop each get £1,000.
Three scenarios above £1,000
Scenario 1: £800 income, no expenses. Under £1,000 → no declaration, no tax. Simple.
Scenario 2: £2,500 income, £200 of expenses. Two options:
- Deduct £1,000 Trading Allowance: taxable profit = £1,500
- Deduct actual expenses (£200): taxable profit = £2,300
Trading Allowance wins — taxable profit £1,500 vs £2,300. Tax at 20% basic-rate: £300 vs £460. Saves £160.
Scenario 3: £5,000 income, £3,500 of expenses.
- Deduct £1,000 Trading Allowance: taxable profit = £4,000
- Deduct actual expenses (£3,500): taxable profit = £1,500
Actual expenses win — taxable profit £1,500 vs £4,000. Tax at 20%: £300 vs £800. Saves £500.
Rule of thumb: use Trading Allowance if your expenses are below £1,000. Use actual expenses if they're above.
What about NI?
Income above £1,000 (after Trading Allowance or expenses) counts as self-employed profit. From April 2024:
- Class 2 NI mostly abolished. Self-employed with profits above £6,725 are deemed to have paid it.
- Class 4 NI remains: 6% on profits between £12,570 and £50,270, 2% above.
So a £5,000 side-hustle profit (after expenses) generates: £0 income tax (covered by PA if it's your only income), £0 NI (under £12,570 threshold). Combined with PAYE salary, the band stacking determines actual rates.
When you must register for Self Assessment
You must register and file Self Assessment if any of these:
- Trading income above £1,000 in the tax year
- Total income above £150,000 (the long-standing trigger, now £150,000 from 2024/25)
- HICBC applies (income above £60,000 + claim Child Benefit)
- Rental income above £1,000 or £2,500 net
- Untaxed savings interest above £10,000
Register at gov.uk/log-in-file-self-assessment-tax-return/register-if-youre-self-employed. The deadline to register is 5 October following the tax year — i.e. 5 October 2026 for the 2025/26 tax year. File by 31 January 2027.
Check if you need Self Assessment
The side-hustle Self Assessment checker walks through every trigger and tells you whether you need to register.
Open the Self Assessment checker →Sources and methodology
Trading Allowance rules from gov.uk/guidance/tax-free-allowances-on-property-and-trading-income. Badges of trade from HMRC Business Income Manual. Self Assessment registration from gov.uk/check-if-you-need-tax-return.
UK Tax Drag is not authorised by the Financial Conduct Authority and does not provide regulated financial advice — see the content disclaimer for the full position. The methodology page documents how every calculator is built and reviewed.
Related
- Side-hustle Self Assessment checker — do I need to register?
- Sole trader tax calculator — tax and NI for self-employed
- Self Assessment first-timer guide — the registration and filing process
- What is National Insurance? — Class 2/4 explained
- Full UK money glossary
- FAQ library
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