This article explains the trading allowance, how it works today, and what has been announced for the 2027-28 tax year. The increase from £1,000 to £3,000 is an announced future change, not current law, so the rules for 2026-27 remain exactly as they are now. Please check the GOV.UK pages listed at the end for the latest position before you act on anything here.
What it means
The trading allowance is a tax exemption for small amounts of self-employed or casual income. It is based on your gross trading income, meaning your takings before any expenses, not your profit.
Currently the allowance is £1,000 per tax year. It has been at that level since it was introduced in 2017-18. The government has announced that it will rise to £3,000 from 6 April 2027, the start of the 2027-28 tax year. Until then, it stays at £1,000.
In practical terms, if your gross trading income stays at or below the allowance, you generally do not need to tell HMRC about it or file a Self Assessment return for that income.
Who it affects
The allowance is aimed at people with small or occasional trading income, such as:
- Selling items you make
- Odd jobs
- Occasional freelance work
If you have an established sole trader business with takings well above these amounts, the allowance is unlikely to change your day-to-day position. Anyone whose income sits close to the current £1,000 line may find the change relevant from April 2027.
Current rules and requirements
The 2026-27 position
For the 2026-27 tax year, the allowance is £1,000. If your gross trading income is £1,000 or less, you generally do not need to register for Self Assessment or file a return for that income.
If you go over the allowance
If your gross trading income is above the allowance, you generally need to register for Self Assessment and file a tax return. There are usually options for how the allowance is applied in that situation, including deducting the allowance instead of your actual expenses. The detail matters, so check the GOV.UK guidance or speak to an adviser before choosing an approach.
Gross income, not profit
The test is applied to your takings before costs. You could make a small profit and still be over the allowance, because the comparison is with your total income.
Other points to be aware of
The allowance covers trading income only. Property income has its own separate £1,000 allowance. You can't use the trading allowance for income from your employer (or your spouse's or civil partner's employer), from a partnership you're a partner in, or from a company you or someone connected to you owns or controls.
Important dates, thresholds and figures
| Item | Position |
|---|---|
| Trading allowance, 2026-27 | £1,000 |
| Trading allowance since introduction | £1,000 (since 2017-18) |
| Announced trading allowance from 6 April 2027 | £3,000 (announced, not yet confirmed as law) |
| Start of 2027-28 tax year | 6 April 2027 |
| What the allowance is measured against | Gross trading income, before expenses |
The £3,000 figure should be treated as an announcement until you have seen it confirmed in legislation or on GOV.UK.
Worked example
This example uses simple, illustrative figures only.
Sam makes and sells candles at craft fairs as a side activity. In 2026-27 Sam takes £900 in sales and spends £400 on wax and materials.
- Gross trading income: £900
- Allowance for 2026-27: £1,000
Because Sam's gross income is below £1,000, Sam generally does not need to tell HMRC or file a return for this income.
Now suppose Sam's sales rise to £2,000 in 2026-27. Gross income is above £1,000, so Sam would generally need to register for Self Assessment and file a return, even though profit after £800 of costs would be £1,200.
If the same £2,000 of sales happened in 2027-28 and the £3,000 allowance is confirmed as announced, Sam would be below the allowance and would generally not need to report it. That is the kind of difference the change could make.
Common mistakes
- Using profit instead of gross income. The allowance is compared with your takings, not what is left after costs.
- Assuming the £3,000 applies now. It is announced for 6 April 2027 onwards. For 2026-27 the figure is £1,000.
- Ignoring income from several activities. The allowance covers your total income from all your trades combined, not each one separately.
- Not registering when over the limit. If you are above the allowance, you generally need to register for Self Assessment and file a return.
- Not keeping records. Even where you do not need to report, a simple record of your takings shows why.
Frequently asked questions
Is the trading allowance really going up to £3,000?
The government has announced an increase from £1,000 to £3,000 from 6 April 2027. Until it is confirmed in legislation or on GOV.UK, treat it as an announced change rather than settled law.
Does the higher allowance apply to my 2026-27 income?
No. For 2026-27 the allowance remains £1,000. The announced increase starts with the 2027-28 tax year.
Do I need to file a tax return if my income is under the allowance?
Generally no, if your gross trading income is within the allowance. Other circumstances, such as other income you need to report, can still require a return.
Is the allowance based on profit?
No. It is based on gross trading income, before expenses.
What if I go over the allowance?
You generally need to register for Self Assessment and file a tax return.
Practical next steps
- Add up your gross trading income for the current tax year.
- Keep simple records of takings and costs.
- Note 6 April 2027 as the date the announced change is due to start.
- Check the latest position on GOV.UK before relying on the new figure.
- If you are close to the allowance, or unsure whether you need to register, ask for advice.
How 360 Accounts can help
If you are not sure whether your income falls within the allowance, or whether you should register for Self Assessment, we are happy to talk it through. We help sole traders with registration, record keeping, tax returns and planning ahead for changes like this one. Our team in Guildford and Woking works with clients across the UK.
Official references
- GOV.UK: Tax-free allowances on property and trading income (https://www.gov.uk/guidance/tax-free-allowances-on-property-and-trading-income)
- GOV.UK: Check if you need to send a Self Assessment tax return (https://www.gov.uk/check-if-you-need-a-tax-return)
- GOV.UK: Register for Self Assessment (https://www.gov.uk/register-for-self-assessment)