The £1,000 trading allowance or claiming expenses: which leaves you less tax?
If you earn a little on the side, HMRC gives you up to £1,000 a year of trading income tax-free. It's an alternative to claiming your costs, not an extra, so the question is which one is bigger for you.
The rule
You can use the trading allowance or claim expenses, never both. If you use the allowance, you deduct up to £1,000 from your income (never more than the income itself) and no other expenses. If your gross trading income is £1,000 or less you generally don't have to tell HMRC at all.
The test
| Your real costs for the year | Better choice |
|---|---|
| Under £1,000 | The trading allowance: it deducts more than your costs. |
| Over £1,000 | Claim your expenses: they deduct more than the allowance. |
Example: £6,000 income, £400 of costs. With the allowance, taxable profit is £5,000. Claiming expenses, it's £5,600. Same income, with £2,500 of costs: expenses give £3,500, against £5,000 with the allowance. The calculator has a choice called “whichever is better” that works out both.
Who can't use it
The allowance doesn't apply to partnership income, income from a company you or a connected person owns or controls, or income from your employer or your spouse's or civil partner's employer. It's also worth knowing that income counts towards things like student loan repayments and the High Income Child Benefit Charge.
Still file a return if you want to
Even under £1,000 you must file if you want to claim a loss, pay voluntary Class 2 National Insurance, or claim Tax Free Childcare or Maternity Allowance on the income. Over £1,000 you need to register for Self Assessment, and the deadline is 31 January 2027 for 2025/26.
Either way, keep income records. Try both in the calculator, and see what counts as an expense. A Side Hustle Profit Tracker (£4.99, one-off) keeps income, hours and the allowance in one sheet.
This is a planning guide, not tax advice. Rules from GOV.UK, read 21 October 2026.