By Eternity Accountants Editorial Team · Reviewed by Shamayun Chowdhury, Senior Accountant · Published: 7 November 2026 · Last reviewed: November 2026 · Applies to the 2026/27 and 2027/28 tax years
The trading allowance increase raises the tax-free trading allowance from £1,000 to £3,000 from 6 April 2027. If your gross side income is £3,000 or less, you usually will not need to pay tax on it or tell HMRC. For the 2026/27 tax year, the limit is still £1,000.
Selling crafts online, walking dogs at weekends or doing occasional freelance jobs? For years, anything above £1,000 a year meant registering for Self Assessment. The Budget on 28 October 2026 confirmed that this limit will triple.
This guide explains the trading allowance increase in plain English: when it starts, who gains, what still has to be reported, and how much you could save, with worked examples comparing 2026/27 and 2027/28.
- The trading allowance rises from £1,000 to £3,000 from 6 April 2027, the start of the 2027/28 tax year.
- For 2026/27, the old £1,000 limit still applies, including the rule to register by 5 October 2027.
- The allowance is tested on gross income, before expenses, not on profit.
- Above £3,000, you can deduct the allowance or your actual expenses, whichever saves more tax.
- The £1,000 property allowance is not part of this change.
- What is the trading allowance increase?
- When does the trading allowance increase start?
- How the trading allowance works
- Who benefits from the change
- Trading allowance increase worked examples
- Allowance or expenses: which is better?
- Who cannot use the trading allowance
- Does the increase apply to property income?
- What to do now
- Frequently asked questions
- Final verdict
What Is the Trading Allowance Increase?
The trading allowance, sometimes called the trading income allowance, is a tax exemption for individuals with small amounts of trading or miscellaneous income. Since April 2017 it has been worth £1,000 a year. HM Treasury’s policy paper on increasing the trading allowance confirms that it will rise to £3,000.
The trading allowance increase also lifts the Self Assessment reporting threshold for this income to £3,000. In practice, that means far fewer people with small side earnings will need to work out profits or file a tax return.
Why the government made the change
The government first said in its spring 2025 tax update that the reporting threshold would rise to £3,000 by the end of this Parliament. The October 2026 Budget set the date. The stated aims are to support small-scale entrepreneurship and to simplify tax for people with modest side incomes.
How many people does the trading allowance increase help?
According to the policy paper, up to 1.4 million people could benefit. Around 400,000 are expected to pay less tax, with an average saving of about £380 a year. About 100,000 will no longer need to report this income to HMRC at all.
When Does the Trading Allowance Increase Start?
The trading allowance increase takes effect from 6 April 2027 and applies to the 2027/28 tax year onwards. The change is being made through the Finance Bill 2026-27, which amends the rules in Part 6A of the Income Tax (Trading and Other Income) Act 2005.
| Tax year | Trading allowance | Do you need to report? |
|---|---|---|
| 2026/27 (6 April 2026 to 5 April 2027) | £1,000 | Yes, if gross trading income is over £1,000 |
| 2027/28 (from 6 April 2027) | £3,000 | Yes, only if gross trading income is over £3,000 |
What it means for 2026/27
Nothing changes for the current tax year. The UK trading allowance was £1,000 in 2025/26 and stays at £1,000 for 2026/27. If your gross side income for 2026/27 is more than £1,000, you still need to register for Self Assessment by 5 October 2027 and file a return by 31 January 2028.
Does the trading allowance increase affect Making Tax Digital?
No. Making Tax Digital for Income Tax applies to sole traders and landlords with qualifying income over £50,000 from April 2026, £30,000 from April 2027 and £20,000 from April 2028. The trading allowance increase does not change those thresholds, and most people with small side earnings are far below them.
How the Trading Allowance Works
HMRC’s guidance on tax-free allowances on property and trading income explains that the HMRC trading allowance covers income from self-employment, casual services such as babysitting or gardening, and hiring out personal equipment such as power tools.
Full relief
If your gross trading income is at or below the allowance, it is treated as nil. You do not pay tax on it and, in most cases, you do not need to tell HMRC. From 2027/28, full relief will cover gross income of up to £3,000.
Partial relief
If your gross income is above the allowance, you can choose to deduct the allowance instead of your actual expenses. HMRC’s Business Income Manual (BIM86000) calls this partial relief. You must elect for it, and you cannot claim expenses or capital allowances as well.
Gross income, not profit
This is the most common mistake. The test uses your takings before any costs. If you sell £3,400 of goods that cost you £2,000 to make, your gross income is £3,400, so you are over the new limit even though your profit is only £1,400.
Who Benefits From the Change
The change is aimed at people whose side income is real but small. It is most useful for:
- Online sellers who make and sell items through marketplaces or social media.
- Gig and casual workers such as dog walkers, tutors, cleaners and delivery riders with small earnings.
- Employees with a side business who would otherwise need a tax return just for a few hundred pounds of profit.
- Students and retirees earning a little extra from occasional work.
Trading Allowance Increase Worked Examples
These examples show the trading allowance increase in action. They assume each person already uses their Personal Allowance through a job or pension, so side income is taxed at 20% or 40%. Their profits are well below the £12,570 point where Class 4 National Insurance starts.
Example 1: Emma, craft seller
Emma sells handmade candles and takes £2,600 a year, with costs of £400. In 2026/27, she is over £1,000, so she must file a return. Using the £1,000 allowance, she pays basic rate tax on £1,600, which is £320.
From 2027/28, her £2,600 falls within the £3,000 allowance. She pays no tax on it and does not need to report it. The trading allowance increase saves her £320 a year and the work of a tax return.
Example 2: Tom, weekend DJ
Tom takes £4,500 a year from DJ work, with £800 of expenses. In 2026/27, the £1,000 allowance beats his expenses, so £3,500 is taxable. At 20%, he pays £700.
From 2027/28, he deducts the new £3,000 allowance, so only £1,500 is taxable and his tax falls to £300. He saves £400 a year. As a higher-rate taxpayer, the saving would be £800.
Example 3: Sana, part-time photographer
Sana takes £8,000 a year and spends £5,000 on equipment, travel and software. Her actual profit is £3,000. Using the trading allowance would leave £5,000 taxable, so she is better off claiming her real expenses. The trading allowance increase does not help her, and that is fine.
| Person | Gross income | Tax in 2026/27 | Tax in 2027/28 | Saving |
|---|---|---|---|---|
| Emma (basic rate) | £2,600 | £320 | £0 | £320 |
| Tom (basic rate) | £4,500 | £700 | £300 | £400 |
| Sana (basic rate) | £8,000 | £600 | £600 | £0 |
Allowance or Expenses: Which Is Better?
Once your gross income is above £3,000, you have a choice each tax year. The rule of thumb is simple:
- Expenses under £3,000: deduct the trading allowance instead.
- Expenses over £3,000: claim your actual expenses.
- Making a loss: do not use the allowance, because it cannot create a loss. Claiming expenses lets you record the loss and use it.
You can switch method from one tax year to the next, so review it each year. Keep basic records either way, because HMRC can ask to see how you reached your figures.
Who Cannot Use the Trading Allowance
GOV.UK lists several situations where the allowance is not available, and the trading allowance increase does not change them. You cannot use it in a tax year if the income comes from:
- a partnership in which you or a connected person are a partner
- a company you or a connected person owns or controls
- your employer, or your spouse’s or civil partner’s employer
These rules stop people from turning normal salary or business profits into tax-free income. If any of them apply, you must report the income in the usual way.
Does the Trading Allowance Increase Apply to Property Income?
No. The policy paper covers the trading allowance only. The separate £1,000 property allowance, used by people who rent out a driveway, a parking space or a garage, is not part of this change. Rent a Room relief has its own, separate limit.
Landlords should also note that the October 2026 Budget announced higher Income Tax rates on property income from 6 April 2027. If you have both trading and property income, check each allowance separately.
What to Do Now
- Work out your 2026/27 gross income. If it is over £1,000, you still need to register and file under the current rules.
- Keep records. Online platforms now report sellers’ income to HMRC, so make sure your figures match what the platform reports.
- Plan for 2027/28. If your side income will stay under £3,000, you may not need a return for it at all.
- Check other reasons to file. You may still need a return for rental income, savings interest or the High Income Child Benefit Charge.
Online platforms and HMRC
Since January 2024, marketplaces and apps such as eBay, Etsy, Vinted and Airbnb have collected details of their sellers and passed them to HMRC each year. This is not a new tax. It simply helps HMRC spot people who should be reporting. The trading allowance increase still applies to anyone whose gross trading income stays within the limit.
Remember that selling your own unwanted belongings is not usually trading. The allowance matters when you buy to resell, make goods to sell, or provide services for money. If your side business is growing, our sole trader tax services can handle registration, records and your return.
Frequently Asked Questions
When does the trading allowance increase to £3,000?
From 6 April 2027, the start of the 2027/28 tax year. For 2026/27, the allowance is still £1,000, so income above that must be reported under the current rules.
Has the £1,000 trading allowance been scrapped?
No. It is being increased, not removed. The £1,000 allowance applies until 5 April 2027, and the new £3,000 allowance replaces it from 6 April 2027.
Is the trading allowance based on profit or turnover?
It is based on gross income, meaning your total takings before expenses. If your takings are over £3,000 from 2027/28, you must report them, even if your profit is lower.
Do I need to tell HMRC if I earn under £3,000?
From 2027/28, generally not, if all of your trading income is £3,000 or less and none of the exclusions apply. Until then, the limit is £1,000. Keep records in case HMRC asks.
Does the trading allowance increase apply to rental income?
No. The property allowance for income from land or property stays separate and is not part of this change. Rent a Room relief also has its own rules.
How much will the trading allowance increase save me?
If you use the allowance, the extra £2,000 can save up to £400 a year as a basic-rate taxpayer, or £800 as a higher-rate taxpayer, from 2027/28. The government estimates the average saving at about £380.
Does the trading allowance cover miscellaneous income?
Yes. One allowance covers trading income and certain miscellaneous income, such as casual work that is not a trade. The two are added together and tested against the single limit.
Can I use the trading allowance if I am employed?
Yes, as long as the side income does not come from your employer or your spouse’s or civil partner’s employer. Many employees with a small side business will benefit from the increase.
Final Verdict: What the Trading Allowance Increase Means for You
The trading allowance increase is good news for anyone with a small side income. From April 2027, up to £3,000 of gross trading income will be tax-free and, in most cases, will not need reporting. Until then, the £1,000 rules still apply, so do not skip your 2026/27 return. Check your gross income, compare the allowance with your expenses, and keep simple records.
- Add up your gross side income for 2026/27 so far.
- Register for Self Assessment by 5 October 2027 if it will be over £1,000.
- See our fixed-fee pricing, or call 0116 4030595 or email info@eternityaccountants.co.uk for help.
✓ Allowance vs expenses checked every year
✓ Self Assessment filed on time
Why trust this guide
- Written by the Eternity Accountants Editorial Team and reviewed by a chartered management accountant (ACMA, MAAT) with more than 15 years’ UK practice experience.
- Checked against HM Treasury’s October 2026 policy paper, GOV.UK guidance and HMRC’s Business Income Manual.
- Worked examples compare 2026/27 and 2027/28 rules.
- Last reviewed: November 2026.
