If you earn a bit of extra income on the side, from freelancing, selling crafts online, or tutoring, you may be able to benefit from the UK trading allowance.
This allowance can help you earn up to £1,000 tax-free each year without having to register with HMRC. But who qualifies, and what are the rules?
Let’s break it down.
What Is the Trading Allowance?
The trading allowance is a tax exemption that permits individuals in the UK to earn up to £1,000 per tax year from self-employment, casual services, or side hustles without having to pay tax or report it to HMRC.
It’s designed to make things easier for people with small or occasional income streams — for example:
- Selling handmade goods
- Freelance design or writing
- Babysitting, tutoring, or dog walking
- Online marketplace sales
If your total gross trading income is £1,000 or less in a tax year, you generally do not need to register for Self Assessment or pay any tax.
Who Can Use the Trading Allowance?
You can use the trading allowance if:
- You’re an individual earning self-employed or casual income
- Your gross income (before expenses) from these activities is £1,000 or less
- You are not already claiming business expenses for the same income
If you meet all the above, you can take advantage of the full £1,000 tax-free.
What If You Earn More Than £1,000?
If your trading income exceeds £1,000 in a tax year, you must register for Self Assessment and report your income to HMRC.
You then have two options:
- Claim the £1,000 trading allowance and pay tax on the remaining amount
- Ignore the allowance and deduct actual business expenses instead
Choose the method that gives you the best tax outcome, but you can’t do both.
Can I Use the Allowance If I’m Employed?
Yes, if you’re employed and have a side hustle (e.g., selling on Etsy or tutoring), you can still use the trading allowance for your additional income.
Just make sure your side income from trading or services stays within the £1,000 threshold to avoid extra tax reporting.
When Can’t You Use It?
You cannot claim the trading allowance if:
- You’re earning from a company you or a family member owns
- You’re in a business partnership
- You’re already claiming allowable expenses for the same income
Final Thoughts
The trading allowance is a helpful way to simplify tax reporting for side hustlers, freelancers, and hobby sellers. It’s especially useful if your earnings are small and occasional.
But if your income grows, great news! Just make sure to register for Self Assessment and choose the best option between the allowance and expense deductions.
Need Advice?
Not sure which route is right for you? A qualified accountant can help you decide whether to claim the trading allowance or deduct actual expenses, and make sure you stay compliant with HMRC.