The £1,000 Trading Allowance: How to Use It on Your Side Income

The £1,000 trading allowance lets you earn up to £1,000 from self-employment or casual work in a tax year without paying tax or National Insurance, and without needing to complete a Self Assessment return.

What counts?

Selling on eBay or Vinted, freelance work, tutoring, dog walking, crafts — any self-employed or casual income. It does not apply to rental income (that has its own £1,000 property allowance).

Above £1,000

If you earn more than £1,000, you have two options:

• Deduct the flat £1,000 allowance from your gross income, or
• Deduct your actual allowable expenses (better if expenses exceed £1,000)

The catch

You cannot use the trading allowance and claim actual expenses — it's one or the other. If your business expenses are low, the flat allowance is simpler.

Gross income, not profit

The most common misunderstanding is what the £1,000 is measured against. It applies to your gross trading income, meaning everything you received before any costs. Sell £1,400 of items that cost you £600 to make, and you are over the threshold even though your profit was only £800.

That distinction decides whether you need to register at all, so it is worth checking against your actual receipts rather than your sense of how much you made.

Worked comparison: which option is better

Gross income of £4,000 from freelance work.

• If your expenses were £400: claim the allowance. Taxable profit £4,000 − £1,000 = £3,000, rather than £3,600 using actual costs. The allowance wins by £600.
• If your expenses were £2,500: claim actual expenses. Taxable profit £1,500, against £3,000 using the allowance. Actual costs win by £1,500.

The rule of thumb is simply whether your allowable costs exceed £1,000. Below that, take the allowance and skip the record keeping. Above it, claim the real figures.

Selling personal belongings is usually not trading

Clearing out your wardrobe on Vinted is generally not trading at all, and the allowance is irrelevant to it. Selling personal possessions you originally bought to use is not taxable income, though capital gains rules can apply to individual items sold for more than £6,000.

What changes the position is buying or making things with the intention of selling them. That is trading, and the allowance then applies. HMRC weighs a set of badges of trade, including how often you sell, whether you modify goods to sell them, and whether there is a profit motive.

Online marketplaces now report seller data to HMRC automatically, so the practical advice is to be able to explain which category your activity falls into rather than to assume nobody is looking.

Interaction with your employment

The trading allowance is separate from your personal allowance and is not affected by your job. But if your PAYE salary already uses your full personal allowance, trading profit above £1,000 is taxed from the first pound at your marginal rate.

For a basic rate taxpayer that means 20% income tax plus Class 4 National Insurance on profits above the threshold. Setting aside roughly a third of profit as you go is a reasonable default for most people, and avoids a January shortfall.

The property allowance is separate

There is a distinct £1,000 property allowance for rental income, and you can use both in the same year if you have both types of income. They do not share a limit. Income from renting a room in your own home may instead fall under the Rent a Room scheme, which has its own much higher threshold.

Estimate your bill

Use the tax calculator to see what a given level of side income costs once tax and National Insurance are applied, or the combined calculator if you also have a PAYE salary.

General information, not tax advice. HMRC guidance is definitive and thresholds change between tax years.