What the Trading Allowance is
Who this guide is for: For sole traders and casual sellers deciding between the £1,000 allowance and actual expenses.
The Trading Allowance lets you treat up to £1,000 of gross trading income as covered by the allowance instead of deducting business expenses. It is measured against turnover, not profit.
Keep three ideas separate: gross income (turnover), taxable trading profit (after allowance or expenses), and tax payable (after Personal Allowance and other income).
Full relief, partial relief and actual expenses
- Full relief: gross income is £1,000 or less and you claim the allowance — taxable trading profit from that trade can be £0.
- Partial relief: gross income exceeds £1,000 — you deduct the allowance from gross income and tax the remainder (with no expense deductions for that trade).
- Actual expenses method: deduct allowable costs instead of the allowance. See Allowable Expenses for Sole Traders.
You cannot normally combine the allowance with expense deductions for the same trade in the same year. Connected-party and other exclusions can restrict the allowance — check GOV.UK if you trade with family or your employer.
Which method to use
| Prefer | When it may help |
|---|---|
| Trading Allowance | It is available, actual allowable expenses are below £1,000, and the allowance produces the lower taxable profit |
| Actual expenses | Allowable expenses exceed the available allowance and you are eligible to deduct those costs |
Worked examples
Low turnover — £800 income
Tax year 2026/27 · England · expenses £150.00 · figures from calculateTradingProfit. Shows taxable trading profit, not final tax payable.
| Gross income | £800.00 |
|---|---|
| Actual expenses | £150.00 |
| Profit if allowance used (key figure) | £0.00 |
| Profit if expenses used | £650.00 |
Allowance method gives the lower (or equal) taxable profit here.
Higher turnover — £3,000 income
Tax year 2026/27 · expenses £400.00. Taxable trading profit comparison only.
| Gross income | £3,000.00 |
|---|---|
| Actual expenses | £400.00 |
| Profit if allowance used (key figure) | £2,000.00 |
| Profit if expenses used | £2,600.00 |
Allowance wins: taxable profit £2,000.00 versus £2,600.00 on expenses.
Compare the Trading Allowance with actual expenses against your other income Use the Self-Employed Tax Calculator
Registration rules are separate — see Registering as Self-Employed. The Personal Allowance in 2026/27 is £12,570.