The Trading Allowance: A Complete Guide for Side Hustles and Casual Income

The trading allowance is one of the simplest tax reliefs available in the UK — a £1,000 per year deduction from self-employment or miscellaneous trading income. It was introduced to simplify tax for small-scale sellers, casual earners, and side-hustlers, and it eliminates tax entirely for many people with modest income from activities like selling on eBay, doing occasional odd jobs, or renting out a car parking space.

Despite its simplicity, the allowance has nuances worth understanding — especially around when to use it versus claiming actual expenses, and how it interacts with other income.

What the trading allowance is

The trading allowance is a £1,000 annual deduction from gross income from self-employment or "miscellaneous income" (income that doesn't fit neatly into another category). It applies to:

• Sole trader income from a business
• Income from casual services (odd jobs, babysitting, dog walking)
• Income from selling goods online (eBay, Vinted, Etsy sales above the casual resale threshold)
• Income from renting out equipment or personal assets
• Income from other ad hoc trading activities

It does not apply to:

• Employment income (that has separate rules)
• Income from a partnership
• Property income (which has its own property income allowance of £1,000)
• Income from a limited company (which is not "trading income" in the same sense)

The complete exemption — income below £1,000

If your gross trading income is £1,000 or less in the tax year, you are completely exempt from tax on it. You don't need to declare it on a Self Assessment return if it's your only income requiring SA — you don't need to register for Self Assessment just because of income below this threshold.

This covers most occasional sellers and casual earners. If you sold some old furniture on Facebook Marketplace, did a couple of hours of handywork for a neighbour, or rented out a parking space for a few months and earned less than £1,000 total, there is no tax to pay and no registration required.

Important: This exemption applies to the gross amount, before any deductions. If your sales proceeds were £900 even if your costs were £300, you are below the threshold (on gross receipts, not profit).

Partial relief — income between £1,000 and more

If your gross trading income exceeds £1,000, you have two choices for how to calculate your taxable profit:

Option A: Claim the trading allowance

• Deduct £1,000 from your gross income
• Pay tax on the remainder
• No need to track individual expenses

Option B: Claim actual allowable expenses

• Deduct your actual costs from your gross income
• Pay tax on the net profit
• Requires records of all expenses

Example — income of £5,000, expenses of £800:

Option A (trading allowance): Taxable profit = £5,000 − £1,000 = £4,000

Option B (actual expenses): Taxable profit = £5,000 − £800 = £4,200

In this case, Option A is better — the trading allowance (£1,000) exceeds actual expenses (£800).

Example — income of £5,000, expenses of £3,200:

Option A (trading allowance): Taxable profit = £5,000 − £1,000 = £4,000

Option B (actual expenses): Taxable profit = £5,000 − £3,200 = £1,800

Here, Option B is clearly better. Claiming actual expenses produces a much lower taxable profit.

Use the Trading Allowance Calculator to compare both options for your income and expenses.

When the trading allowance is most useful

The trading allowance is most valuable when:

• Your actual expenses are low (service businesses, online selling with minimal stock costs)
• You want simple tax treatment without keeping detailed expense records
• Your income is modestly above £1,000 and tracking expenses would be disproportionate effort

It is least useful when:

• Your expenses are significant relative to income (any business buying goods to resell, tradespeople with material costs)
• You have losses that you'd want to carry forward (the trading allowance doesn't generate a loss — it simply reduces income to zero at minimum)

The trading allowance and multiple sources

The trading allowance is a per-person limit, not a per-business limit. If you have multiple streams of self-employment or trading income, they are pooled — you get one £1,000 allowance in total, not one per income stream.

For example, if you earn £600 from Etsy and £700 from occasional dog walking, your total trading income is £1,300. You can claim the £1,000 trading allowance and pay tax on £300 — you cannot apply a separate £1,000 to each activity.

The trading allowance and the property income allowance

The £1,000 property income allowance (for rental income from property) is separate from the trading allowance. If you both let out property and do some freelance work, you may be able to claim both allowances in the same year — £1,000 against rental income and £1,000 against trading income.

Claiming it on your Self Assessment return

On the SA return, the trading allowance is declared in the self-employment or miscellaneous income section. If you're using the trading allowance in full (income £1,000 or below), you may not need to complete a full Self Assessment return just for this income. If you're claiming partial relief (income above £1,000, using the £1,000 deduction instead of actual expenses), you enter your gross income and indicate you're using the trading allowance rather than actual expenses.

The online SA return guides you through this. If you're in any doubt about which box to use, the Self Assessment Estimator can help you understand how this income affects your overall tax position.

What doesn't count as income for the trading allowance

Not all money received from selling things is "trading income." The key distinction:

• Casual resale of personal possessions (e.g., selling clothes you bought for yourself, clearing your attic of items you originally owned for personal use) is generally not trading income and not subject to income tax at all. There may be Capital Gains Tax implications for higher-value items, but the annual CGT exempt amount absorbs most typical sales.

• Buying goods specifically to resell at a profit is trading income — this is the definition of a trade. It falls within the trading allowance rules.

HMRC's guidance on the distinction between trading and casual sales is clear at the extremes but can be ambiguous in the middle. If you regularly buy items specifically to resell at a profit, HMRC is likely to treat that as trading. Occasional sales of personal possessions are not.