What is the trading allowance for self-employed people?
Answered 11 March 2026
The Trading Allowance for Self-Employed People
What the law says
The trading allowance is set at £1,000 per tax year for individuals. This is defined in ITTOIA 2005, s.783AD, which sits within Part 6A, Chapter 1 of that Act.
The allowance covers:
- Income from a relevant trade (a trade, profession or vocation carried on by an individual otherwise than in partnership)
- Miscellaneous income that would otherwise be chargeable under Chapter 8 of Part 5 ITTOIA 2005
There are two forms of relief:
-
Full relief (s.783AE): If the individual's total relevant income does not exceed £1,000, that income is not charged to income tax at all.
-
Partial relief (s.783AH/783AI): If relevant income exceeds £1,000, the individual may elect to deduct the £1,000 allowance from gross receipts instead of claiming actual expenses.
Where income comes from multiple trades or sources, the individual may allocate the £1,000 allowance between them as they choose, subject to the constraint that it cannot create a negative profit figure or a loss in miscellaneous income transactions.
Elections (both to opt out of full relief, or to elect into partial relief) must be made on or before the first anniversary of the normal self-assessment filing date for the relevant tax year.
The Treasury has the power to increase the £1,000 figure by regulations.
HMRC guidance / practice
HMRC confirms the allowance permits individuals to receive up to £1,000 of gross income tax-free from a trade or from miscellaneous income sources. Key practical points from HMRC are:
- If gross receipts are £1,000 or less and the individual claims full relief, they do not need to notify HMRC or declare the income on a Self Assessment return.
- If gross receipts exceed £1,000, the individual can still use the allowance under partial relief, deducting £1,000 from gross receipts — but cannot then also claim actual expenses.
- The allowance cannot be used to generate a loss — it can only reduce income to nil.
- The allowance is applied once across all income from a sole trade.
- Individuals whose relevant income includes income from a connected party are not eligible for the trading allowance for that tax year.
- The trading allowance cannot be claimed against SEISS receipts, though it may be claimed against other trading income in the same year.
- Because the trading allowance is deducted in determining profits chargeable to income tax under Chapter 2, Part 2 ITTOIA, no Class 4 NICs are due on income covered by the allowance.
Full HMRC technical guidance is available at BIM86000.
Citation sources
As explained at EIM71153 you will not be required to pay National Insurance contributions on the reimbursement of out of pocket expenses received for voluntary work. Tax is only charged on any profit element arising from the reimbursements. As an alternative to claiming actual expenses (an appropriate proportion of insurance, vehicle duty, fuel costs etc.) or using the tax-free mileage allowance rates, an individual could instead take advantage of the £1,000 trading allowance - which is availabl
trading activity do not amount to a permanent cessation of the trade for tax purposes. For example, if a business closed its doors to customers, or otherwise ceased trading during the coronavirus lockdown period, but intended to continue trading after restrictions were lifted, then the trade should not be treated as having ceased. Any income and expenditure relating to the gap in trading will be taken account of in the calculation of trade profits or losses, subject to the usual tax rules and ca
PART 6A Income charged under this Act: trading and property allowances CHAPTER 1 Trading allowance Elections Election for full relief not to be given 783AL 1 An individual may elect not to be given full relief for a tax year (see sections 783AF and 783AG). 2 An election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the election is made.
PART 6A Income charged under this Act: trading and property allowances CHAPTER 1 Trading allowance Basic definitions The individual's trading allowance 783AD 1 For the purposes of this Chapter, an individual's trading allowance for a tax year is £1,000. 2 The Treasury may by regulations amend subsection (1) so as to substitute a higher sum for the sum for the time being specified in that subsection.
Self-employed people, whose profits or gains are chargeable to income tax as trading income under Chapter 2 of Part 2 of ITTOIA 2005, pay Class 4 NICs (but see NIM24510 regarding exceptions). The trading income allowance is deducted in determining the profits chargeable to income tax under Chapter 2, Part 2, ITTOIA, which is the measure of “profits” used for National Insurance Contribution purposes so no Class 4 NICs will be due on income covered by the allowance. For more information regarding
taxable income to nil, the allowances cannot be used to generate a loss. Individuals whose relevant income includes income from a connected party are not eligible (BIM86030) for the trading allowance for that tax year. You can find a simple introduction to the trading allowance on the HMRC Internet site by searching on tax-free allowance on property and trading income. This sets out other circumstances where an individual qualifying for full relief may be required to register for Self-Assessment
PART 6A Income charged under this Act: trading and property allowances CHAPTER 1 Trading allowance Full relief Full relief: introduction 783AE 1 An individual qualifies for full relief for a tax year if— a the individual has relevant income for the tax year, b the relevant income does not exceed the individual's trading allowance for the tax year, and c no election by the individual under section 783AL has effect for the tax year (election for full relief not to be given). 2 An individual also q
SEISS means the Self Employment Income Support Scheme, including any extensions to this scheme. The tax treatment of SEISS overrides GAAP (or the Cash Basis) rules referred to in BIM40456. Except where the payment forms part of partnership income, the SEISS payment falls to be taxable in the tax year of receipt. The amount received should be added to the trading profits (or losses) of the basis period of the tax year of receipt. If there is an overall loss for the year, the normal loss relief ru
PART 6A Income charged under this Act: trading and property allowances CHAPTER 1 Trading allowance Partial relief Deductible amount: splitting of trading allowance 783AK 1 This section applies where the individual's relevant income for the tax year includes— a receipts of a relevant trade, and b receipts of any other relevant trade or miscellaneous income (or both). 2 The references in section 783AI and (where it applies) section 783AJ to the deductible amount are to amounts which, in total, equ
PART 6A Income charged under this Act: trading and property allowances CHAPTER 1 Trading allowance Partial relief Partial relief: alternative calculation of profits: introduction 783AH An individual qualifies for partial relief for a tax year if— a the individual has relevant income for the tax year, b the relevant income exceeds the individual's trading allowance for the tax year, and c an election by the individual under section 783AM has effect for the tax year (election for partial relief).