The short version
- The trading allowance is £1,000 now. It is announced to be £3,000 from 6 April 2027, subject to legislation.
- Full relief: income up to the allowance is tax-free. Partial relief: deduct the allowance instead of expenses on income over it.
- You can't claim the allowance and expenses together, and can't use it for income from your own company, employer or partnership.
- The Self Assessment trading income reporting threshold also goes to £3,000, so small earners may not need to file.
- A loss can only be claimed with actual expenses and a tax return.
What is the trading allowance?
The trading allowance is a tax relief for small amounts of self-employed income. It is £1,000 a tax year today. The Budget on 28 October 2026 announced it will go up to £3,000 from 6 April 2027. That is announced, not law yet: it still needs the Finance Bill.
It works in one of two ways.
- Full relief. If your gross trading income for the year (before any costs) is no more than the allowance, you pay no tax on it. From April 2027 the government says you will not need to declare it either.
- Partial relief. If your income is above the allowance, you can deduct the allowance from your income instead of deducting your actual expenses. Your taxable profit is then your income minus the allowance.
You pick one method or the other for all your trading income in the year. You can't deduct the allowance and your costs together.
What changes in April 2027?
| 2026/27 | 2027/28 (announced) | |
|---|---|---|
| Trading allowance | £1,000 | £3,000 |
| Reporting threshold for Self Assessment | £1,000 | £3,000 |
| Income you can ignore as a side hustle | Up to £1,000 | Up to £3,000 |
The reporting threshold matters as much as the allowance. If your gross trading income is over £1,000 today, you must register for Self Assessment and file a return. From April 2027 that line moves to £3,000, so more people with a small side income can stay out of the system.
Enter your income and costs to compare the allowance with your expenses.
Worked example: £2,800 of sales
Sam does £2,800 of gardening work a year with £600 of costs, and has £20,000 of wages.
- 2026/27: income is over £1,000, so Sam must file. Using the allowance, taxable profit is £2,800 − £1,000 = £1,800. Using expenses, it is £2,800 − £600 = £2,200. The allowance is better. Tax at 20% is £360.
- 2027/28 (announced): £2,800 is under £3,000, so full relief applies. Taxable profit is £0, so there is no tax, and Sam does not need to file just for this income.
That is £360 less tax and a return that is not needed.
Worked example: £5,000 of sales
Priya has £5,000 of sales and £3,500 of costs, and wages of £20,000.
- 2027/28: with the allowance, profit is £5,000 − £3,000 = £2,000. With expenses, it is £5,000 − £3,500 = £1,500. Expenses are better, so Priya claims actual costs and files a return.
When expenses beat the allowance
Expenses beat the allowance when your real, provable costs are higher than the allowance. For a tradesperson buying tools, materials and fuel, that is common. The check is simple: if your costs are over £3,000, claim them. If they are less, compare. If you used a van, the mileage rate or actual costs route changes the answer. See also what you can claim on CIS.
When you can't use the allowance
- Income from your employer, or from a company you or your partner control.
- Income from a partnership you are in.
- Income you have already claimed Rent a Room relief on.
You can use it on some trading income and not others, but only one method applies to each stream. The allowance is per person and is shared across all your trades.
Do I still need to register?
If your gross income is under the threshold you can stay out of Self Assessment, but you may want to register to pay Class 2 NI towards your State Pension, to claim Tax-Free Childcare or Maternity Allowance, or to claim a loss. If you are a CIS subcontractor, your contractor already deducts tax, and you can ask for a refund through a return. See registering as self-employed for CIS.
What we are still waiting for
The Budget documents give the headline figures. The detail, such as how the reporting threshold interacts with Making Tax Digital, will come with the legislation. We will update this guide then.
Questions people ask
How much is the trading allowance for 2027/28?
The Budget on 28 October 2026 announced £3,000 from 6 April 2027, up from £1,000. It is subject to legislation, so until it is passed the £1,000 limit is the law.
Do I need to file a tax return if I earn less than £3,000 from self-employment?
The government says the Self Assessment reporting threshold for trading income rises to £3,000 too, so people covered by the allowance will not have to declare that income. Other income or reasons to file may still apply. Until April 2027 the £1,000 limit applies.
Should I use the trading allowance or my actual expenses?
Use whichever gives the smaller taxable profit. If your costs are below the allowance, the allowance wins. If they are higher, claim your expenses.
Can I use the trading allowance for CIS income?
The allowance applies to self-employed trading income, but you choose between it and expenses. Most CIS subcontractors have real costs, such as tools and mileage, that are higher than the allowance, so expenses usually win. Use the checker to see.
Can I use the allowance if I work through my own company?
No. It can't be used for income from a company you or your partner control, from a partnership you are in or from your employer or someone connected to you.
Can I still register for Self Assessment if my income is under the threshold?
Yes. You can register voluntarily, for example to pay Class 2 NI for your State Pension or to prove income for Tax-Free Childcare or Maternity Allowance.
Sources
Checked against the sources below on 28 October 2026. The 2027/28 figures are announced, not law yet, so we will update this guide when the legislation is published.