The £1,000 Trading Allowance, Explained

Selling on eBay. Freelance gigs on the side. Crafts at a market stall. If you earn a little money from casual trading, the UK tax system gives you a head start: the trading allowance lets you earn up to £1,000 a year tax-free, with no paperwork at all.

How it works

The trading allowance gives every individual up to £1,000 of tax-free trading income per tax year. “Trading income” is broad: selling goods (new or second-hand), providing services, freelance work, renting out equipment — anything that counts as a trade rather than employment.

Full relief — £1,000 or less. If your gross trading income for the year is £1,000 or less, it’s simply tax-free. You don’t need to tell HMRC or register for Self Assessment because of it (other reasons to file, like being employed with untaxed income, still apply). No return, no forms.

Partial relief — more than £1,000. Once your gross trading income passes £1,000, you must register for Self Assessment and declare it. But instead of totting up your actual expenses, you can deduct the £1,000 allowance from your gross income and pay tax on the rest. If your real expenses are tiny — say you made £3,000 selling prints with £150 of costs — partial relief leaves you taxed on £2,000 instead of £2,850. That’s the allowance doing its job.

The rules that matter

Gross, not profit. The £1,000 test is on your gross trading income before expenses. £1,200 of sales with £500 of costs still means you’re over the line and into Self Assessment.

Allowance or expenses — never both. You can’t claim the trading allowance and deduct actual expenses on the same income. Do the maths both ways: if your real expenses top £1,000, claiming expenses wins.

It can’t create a loss. If deducting the allowance would push you into a loss, you can’t use it that way — the allowance can’t manufacture a loss to offset against other income.

One per person. It’s one £1,000 allowance per individual per year, however many side hustles you run. And it doesn’t apply to income from a partnership, a limited company, or work for a company you’re connected to.

A worked example

You sell handmade candles at weekend markets. In the tax year you take £2,400 and spend £700 on wax, wicks, and stall fees. Your options: claim actual expenses and pay tax on £1,700 of profit, or take partial relief and pay tax on £1,400 (£2,400 minus the £1,000 allowance). Partial relief wins by £300. But if your costs had been £1,500, actual expenses would leave £900 taxable — the better choice. Run both numbers every year.

When the side hustle grows up

Cross £1,000 and you’re in the Self Assessment world: register, keep records, file a return. Keep growing and the allowable expenses rules become your best friend — plus the record-keeping duties they bring. And if your gross income keeps climbing, Making Tax Digital‘s thresholds may eventually apply to you too.

Keep records even under the allowance

Under £1,000 you don’t file — but you should still track. A simple log of income (and any expenses) proves you stayed under the line if HMRC ever asks, and it makes the year you cross £1,000 painless: your records are already there. The allowance rewards small earners; the habit of recording rewards everyone.

How Lemon fits

Lemon logs your side-hustle income and expenses in one place, so you always know where you stand against the £1,000 line — and when you cross it, your tagged expenses are already organised for whichever route (allowance or actual expenses) saves you more.

This article is general information, not tax advice. For your specific situation, talk to an accountant.

Download Lemon free on the App Store or Google Play — log your side-hustle income through the year and know the moment you pass £1,000.

Wondering whether your online selling even counts as trading? Our guide to selling on Vinted, eBay or Etsy explains when HMRC actually cares — and why clearing out your own wardrobe is usually tax-free.