The £1,000 trading allowance or claiming expenses

If you sell things online, drive for a delivery app, or do the occasional paid job on the side, the first £1,000 of that income is tax free. The £1,000 trading allowance means anyone earning less than £1,000 in a tax year does not need to declare it or pay tax on it¹. The exemption is automatic: if your self-employed income is £1,000 or less, you do not need to tell HMRC or file a tax return².

The catch is what happens once you go over that figure, or once you decide to claim the allowance against larger income. You can claim the higher of the trading allowance of £1,000 or business expenses, but you cannot claim both². Choosing the allowance means giving up the right to deduct your costs, and with them capital allowances³.

This page sets out what the allowance covers, who can use it, how the choice between the allowance and expenses works in practice, when a tax return becomes compulsory, the deadlines and payment dates, and what to do if HMRC sends you a return you were not expecting.

What the £1,000 trading allowance covers

The trading allowance is £1,000 tax-free against money you make from selling items or providing services³. It exempts £1,000 of gross income from National Insurance or Income Tax². Gross means before anything is taken off, so it is measured against what comes in, not what is left after costs.

It is not the only £1,000 allowance in the tax system, and the names are easy to mix up. There is a separate property allowance of £1,000 covering income from monetising your property in some way, such as being an Airbnb host or renting out your driveway⁷. Property income of less than £1,000 does not need to be reported to HMRC and is tax free⁸. The first £1,000 of income from property you rent is also covered by the property allowance⁸.

The trading allowance is also distinct from the savings allowance, which lets most people receive up to £1,000 in savings interest before paying tax⁸. These are different reliefs for different kinds of income, and each has its own conditions.

Allowance or expenses: you claim one, not both

This is the decision that catches people out. If you go for the trading allowance, you won't be able to claim for any actual expenses you've incurred². The same rule blocks capital allowances: you cannot claim capital allowances if you use your £1,000 tax-free trading allowance³.

So the choice is arithmetic. You can claim the higher of the trading allowance of £1,000 or business expenses, you cannot claim both². TaxAid's worked example makes it concrete: with income of £6,000 and £500 of expenses, claiming the allowance instead gives a taxable profit of £5,000 (£6,000 minus £1,000), which beats deducting the £500².

The allowance wins when your expenses are small relative to £1,000. Expenses win when they are larger, because you deduct the real figure rather than a flat one. Where gross income exceeds £1,000, you are taxed on the profit, not the gross income⁴, so the method you pick directly changes the number HMRC taxes.

There is a third possibility worth knowing about. If you have a trading income of £700 but business expenses of £900 there is a loss of £200². Claiming a loss requires completing a tax return, which is the one situation where income below the threshold still means paperwork².

Who can use the trading allowance

The trading allowance applies to individuals, not those in a partnership². A partner cannot set it against their share of partnership trading income. If you are self-employed on your own account, whether full time or alongside a job, it is available to you.

What counts as allowable expenses, if you go down that route instead, is defined tightly. You can only claim for costs related to business purchases, including office costs, travel costs, clothing expenses, staff costs, things you buy to sell on, financial costs, costs of your business premises, advertising or marketing, and training courses related to your business³. Interest paid on business loans is included as an allowable expense⁴.

Several things are excluded. Allowable expenses do not include money taken from your business for personal use³. Money spent on business entertainments or meals is not an allowable expense, and neither is money spent on new equipment or to set up or expand the business⁴. For items used for both business and personal reasons, you can only claim allowable expenses for the business proportion³.

Capital allowances work differently again. On the cash basis, you can claim capital allowances on the cost of buying a car, but all other items you buy and keep for your business should be claimed as allowable expenses³. None of this is available if you have taken the £1,000 allowance instead.

When trading income means registering for Self Assessment

The threshold is gross income, not profit. You need to complete a Self Assessment tax return if you are self-employed and received a gross income of more than £1,000 in the tax year, including cash in hand⁴. You only have to report this if your gross income before expenses is more than £1,000⁴.

That means a side hustle with £1,200 coming in and £1,100 of costs still crosses the line, even though the profit is £100. The £1,000 figure is a reporting threshold measured at the top of the calculation, not the bottom.

Self Assessment is mainly for self-employed people and people who get money from things other than their job, like investments or renting out a property⁶. Other triggers include having foreign income such as savings or investment income or a foreign pension⁹, and making a profit when selling or disposing of certain assets, for example shares or a second home¹⁰. It is your responsibility to register for Self Assessment if you meet the criteria⁹.

If you are self-employed and claiming Maternity Allowance, you must be registered for self-assessment with HMRC, and not registering, or registering late, may lose some or all entitlement¹¹. Self-employed students need to fill in a Self Assessment tax return each tax year, declaring income and expenses¹². If you wish to pay Class 2 National Insurance on your trading income, it is necessary to register for self-assessment and file tax returns².

Self Assessment deadlines: online by the end of January

The deadline to complete and return your tax return online is 31 January¹³. You have until 31 January the following year to submit your return online, giving you three extra months compared with the paper deadline⁵. Paper returns are due by 31 October, with an online tax return by 31 January¹⁴.

The same date applies whether you send your return over the internet or use Making Tax Digital for Income Tax: 31 January following the end of the tax year¹⁴. For the 2025 to 2026 tax year, anyone with income or gains above the tax-free allowance needs to declare them and pay any tax owed by 31 January 2027¹⁵.

If HMRC sends you a return you do not think you need, the position is firm. Unless the return is withdrawn by HMRC you will have to submit the return by the due date, even if there is no income to report, and penalties for failing to file by the due date will still apply⁹. If your tax return contains an obvious error or is missing information, HMRC will correct the return and send a notice explaining why¹⁶. There is a formal route for disagreeing with a revenue correction notice¹⁶.

Paying the tax: 31 January and 31 July

The bill itself is due by midnight on 31 January following the tax year you are paying for⁶. Payment by online bank account, bank transfer using Faster Payments or CHAPS, debit or corporate credit card online, or at your bank or building society usually reaches HMRC the same or next day¹⁷.

Self-employed people also make payments on account, advance payments towards the tax bill payable by 31 January and 31 July each year². These are covered in more detail on our page about payments on account.

If you cannot pay in full, an online payment plan can be arranged, but it must be within 60 days of the payment deadline¹⁴. HMRC will not add penalties to your debt if a payment plan is agreed before the penalties would have been applied, as long as you keep to the arrangement¹⁴.

Making Tax Digital replaces Self Assessment for some people

Making Tax Digital for Income Tax currently applies to self-employed people and landlords with qualifying income over £50,000 per year⁵. From 6 April 2026 onwards, HMRC is introducing a requirement for some sole traders and individual landlords to use Making Tax Digital¹⁴. Making Tax Digital is now a legal requirement and customers in scope should check now that they are signed up¹⁸.

Joining does not remove the annual return. Customers signed up to Making Tax Digital for Income Tax still need to submit their Self Assessment tax return and pay any tax owed by the 31 January 2027¹⁹.

Separately, the government has set out reforms to how Self Assessment tax is paid. Self Assessment taxpayers with PAYE income, such as from employment or a pension, will need to pay towards their Self Assessment tax bill through their PAYE income, where they have enough income to do so, from April 2029²⁰. These reforms are separate, but complementary to Making Tax Digital²⁰. If taxpayers know their tax will be significantly higher or lower than forecast, they will be able to make their forecasts and in-year tax payments more accurate by contacting HMRC using an easy online form²⁰. For taxpayers with only Self Assessment income, no decisions have yet been made about potential changes to payments²⁰.

Our guide to Making Tax Digital for Income Tax covers who must join and when.

Stopping self-employment or leaving the UK

If you stop trading, the Self-employment Income Support Scheme rules give a sense of how HMRC treats intent: you were not eligible for that scheme if you did not intend to continue to trade²¹. More generally, if you have claimed a grant or relief you were not entitled to, HMRC has a process for telling it and paying the money back²¹.

Leaving the UK changes your position. You do not need to report your income to HMRC if you have already claimed tax relief under a double-taxation agreement¹⁰. If you are not within Self Assessment but a gain, together with your other savings and investment income, exceeds £10,000, that can bring you into the system²².

If you are moving abroad or arriving in the UK, our pages on moving abroad or to the UK and the Non-resident Landlord Scheme set out how residence status affects what you owe.

Where to get help

HMRC processes repayment claims without investigating them, and may check the claim in detail later. If it thinks your claim was not justified, the relief must be returned and interest may be charged²³. Keep records of income and expenses for several years.

If you pay too much through Simple Assessment, you will need to contact HMRC for a refund⁹. If you have paid too much or too little tax by the end of the tax year on 5 April, HMRC will send a tax calculation letter, also known as a P800, or a Simple Assessment letter²⁴. These letters are official and arrive by post or appear in a customer's Personal Tax Account online²⁵.

Free, impartial help is available. TaxAid provides guidance for people on lower incomes, and our page on complaining about HMRC explains how to escalate a dispute. For the wider picture on who must file and when, see Self Assessment.