What Is the Trading Allowance? A Guide for Small Providers

The trading allowance can let you earn small amounts from side work without the usual tax steps. Learn how it works in general and when it may not help.

If you do a few cleaning jobs, some garden tidying or the odd bit of handyman work on top of your day job, you may have heard of the "trading allowance". It is one of the most misunderstood parts of self-employment, partly because people remember a number from a news story and assume it applies to them without checking.

This guide explains the idea in general terms. It is not tax advice, and the figure and the conditions are set by government, so always confirm the current details on gov.uk.

The basic idea

The trading allowance is a tax relief on small amounts of trading income. In general terms, if your gross trading income for the tax year is under a set amount, you may not have to tell HMRC about it or pay tax on it. If your income goes over that amount, you can usually choose between two ways of working out your taxable profit.

The important word is gross. It refers to what you took in before costs, not what you had left over. That surprises people who assume "I only made a little after buying supplies, so I'm fine."

Two ways to calculate profit when you are over

When your income is above the threshold, you generally pick one of these approaches:

Method	How it works	Often suits
Deduct actual expenses	You subtract your real business costs from income	People with substantial costs: materials, travel, tools
Deduct the allowance	You subtract the fixed allowance instead of actual costs	People with very low costs

You cannot normally claim both the allowance and actual expenses for the same income. Work out which gives the lower taxable profit, ideally with the help of an accountant or the gov.uk calculators.

When the allowance may not help you

The allowance is not a universal shield. Check carefully if any of these apply:

Your gross income is above the threshold. Then you will generally need to register and file, even if the profit is small.
You have only one business but several income streams. The allowance can be shared in specific ways, so read the rules rather than guessing.
You are paid by a company you or a partner control, or income comes from a partnership. Special rules can apply.
You have high costs. Actual expenses may be better than the flat allowance.
You want to build a record for a mortgage, a tenancy application or a lender. Lenders often like to see a filed return; ask them what they need.
You want to claim a loss. A loss usually needs to be declared and calculated using actual expenses.

How it interacts with platforms

Income earned through any marketplace, app or direct work counts as your trading income if you are trading. Payments received through a platform are not tax-free simply because the platform handled the payment. Keep your own records of what you were paid across all sources, because you are responsible for your own totals.

A worked example, in plain terms

Imagine someone who does occasional weekend gardening jobs. Across the year, they take in a modest amount before any costs. They compare that total against the current allowance on gov.uk. If it is under, they may not need to declare it. If it is over, they need to register and report, then compare "actual costs" against "the flat allowance" to see which gives the smaller taxable profit. They keep their receipts either way, because they might need to prove how they reached the figure.

You can adapt this reasoning to your own work, using real numbers from your records.

Keep records even when you might be under

Even if you believe you are under the threshold, keep simple records of takings. Things change: a good summer or a regular client can push you over, and you will want evidence of exactly when. A simple system is described in our guide to record keeping for self-employed service providers.

Next steps if you are over the threshold

Register as a sole trader with HMRC.
Learn the rhythm of Self Assessment for new sole traders.
Review the expenses you can usually claim.
Consider whether you need to think about National Insurance, covered in our National Insurance explainer.

Frequently asked questions

Does the trading allowance apply per job or per year?

It is generally assessed across the tax year, using your total gross trading income, not job by job. Check the current rules on gov.uk to confirm how it applies in your circumstances.

If I am under the threshold, do I still need to keep records?

You may not need to report the income, but keeping simple records is wise. They show how you reached your total and help if circumstances change or HMRC asks questions.

Can I use the allowance and still claim my van costs?

Generally you choose between deducting the allowance and deducting actual expenses for the same income, not both. An accountant or the gov.uk guidance can help you work out which is better.

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National Insurance for the Self-Employed Explained — What National Insurance means when you work for yourself, how the classes differ in general terms, and why it matters for your state pension.
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