UK Trading Allowance: How It Works and How to Check Budget Changes

For the 2026–27 UK tax year, the trading allowance is still £1,000. Budget 2026 announced that it is scheduled to increase to £3,000 from April 6, 2027, but that change is not in force yet: HMRC says Finance Bill 2026–27 will amend the law. If you are checking a side income or planning a small business, use the limit for the tax year in which you earned the money—not a future Budget figure.

The allowance is a simplified way to calculate tax on certain small amounts of trading and miscellaneous income. It can also affect whether you need to report that income to HMRC, but “under the allowance” does not automatically mean you can ignore every tax-return obligation.

How the trading allowance works now

The current allowance is up to £1,000 per tax year. A UK tax year runs from April 6 through April 5. The allowance can cover income from self-employment, casual services such as gardening or tutoring, and some other qualifying trading or miscellaneous receipts. Add together relevant income from your different activities; the £1,000 limit is not a separate allowance for each app, customer, or side hustle.

Use gross receipts—not profit—to check the threshold. Gross means the total relevant income before you subtract business costs or allowances. For example, if you receive £1,800 for freelance design work and spend £700 on eligible business expenses, the gross amount is £1,800.

Choose the allowance or actual expenses

If your gross income is more than £1,000, you may be able to deduct the trading allowance instead of claiming expenses or other allowances against that income. You cannot claim both the trading allowance and expenses for the same income, and the deduction cannot exceed your receipts or create a trading loss.

With £1,800 of receipts, using the £1,000 allowance leaves £800 of taxable trading profit before considering your other tax details. If your allowable expenses were £1,200, deducting those expenses instead would leave £600, so actual expenses could be the better choice. Keep your receipts and compare both calculations before you file. HMRC’s trading allowance guidance explains full relief for income within the limit and partial relief when income is higher.

What the 2026 Budget changes—and when

Budget 2026, published October 28, 2026, announced an increase in the trading allowance from £1,000 to £3,000. HMRC’s tax information and impact note says the increase will apply from April 6, 2027, for the 2027–28 tax year onward. It also says the Self Assessment reporting threshold for trading income will rise to £3,000 from that date. The government says it will legislate through Finance Bill 2026–27.

That timing matters. Income earned between April 6, 2026, and April 5, 2027, falls in 2026–27 and remains subject to the existing £1,000 limit. The £3,000 figure is a future rule, not an amount to use on a 2026–27 return. As of October 30, 2026, check whether the Finance Bill has changed or received Royal Assent before treating the announced measure as settled law.

The Budget measure concerns trading and miscellaneous income. Do not assume it changes every other UK tax allowance: HMRC describes property income under a separate property allowance, with separate eligibility and reporting rules. Check the relevant property guidance if you also rent out a room, home, land, or equipment.

Common misunderstandings to avoid

• “£1,000 profit is the limit.” The threshold is based on gross relevant receipts before expenses, not what is left after costs.
• “Each side hustle gets £1,000.” Add together relevant income across activities. The allowance is not multiplied by the number of platforms or customers.
• “Every online sale is trading.” Selling belongings you owned for personal use is not automatically a trade. HMRC says you are more likely to be trading when you buy goods intending to resell them for profit or make goods to sell. Use its online-platform income checker to classify the activity.
• “The allowance replaces every filing rule.” If you already need to file Self Assessment for another reason, a small side income may still need to be included. Some connected-party, employer, partnership, and other circumstances can also restrict relief. Check eligibility before claiming.

How to verify a Budget change

1. Start with HMRC guidance for the type of income. Confirm whether it is trading, miscellaneous, property, or a personal sale, and note the tax year involved.
2. Read the Budget measure, not only headlines. HMRC’s “Increasing the trading allowance” note gives the amount, operative date, current law, and proposed revision.
3. Check the bill and its status. The Budget 2026 tax legislation overview says the government intends to legislate the £3,000 limit in Finance Bill 2026–27. Recheck the bill’s progress and final wording on GOV.UK or Parliament’s legislation pages.
4. Recheck HMRC before filing. Government guidance can update after a Budget or Royal Assent. Confirm the allowance and reporting threshold for the exact tax year, then compare the allowance with your actual eligible expenses.

If you are a sole trader with more than £1,000 in gross trading income in 2026–27, HMRC currently says you must register for Self Assessment, subject to your circumstances. If you have mixed or unusual income, use HMRC’s sole trader registration guidance and the applicable income-specific rules rather than applying the future £3,000 threshold early. Keep invoices, platform statements, and bank records even when you expect the allowance to cover your income.