The £1,000 trading allowance explained

What the allowance actually is

The trading allowance lets you earn up to £1,000 of gross trading income in a tax year with no tax to pay on it. If trading is your only source of this kind of income and you stay at or under £1,000, you don't need to register for Self Assessment or file a return for it at all. It applies to gross income — the total you took in — not to profit, which is an important distinction people often get backwards.

Gross income, not profit

Because the allowance is measured on what you took in rather than what you kept, it's easy to cross £1,000 without realising, especially if you're buying stock to resell. Someone who spends £600 buying items and sells them for £1,100 has £1,100 of gross trading income — over the allowance — even though their profit is only £500. The allowance doesn't care about your costs; it's a threshold on turnover.

Two reasons to file anyway, even under £1,000

Staying under £1,000 means you don't have to file, but there are two situations where you might want to, or have to anyway. The first is Class 2 National Insurance: it's voluntary at these profit levels, but paying it builds up qualifying years towards your State Pension, and you can only pay it voluntarily by filing a return and ticking the box for it. If you have gaps in your record, that's worth the paperwork.

The second is the connected-party exception. The trading allowance can't be used at all if the income came from a company you or someone connected to you owns or controls, from a partnership you or a connected person are partners in, or from your own employer or your spouse's or civil partner's employer. If any of those describe your buyer, the £1,000 doesn't cover you and the income has to be reported however small it is.

Does it apply to me at all?

Only if you're trading in the first place. Selling your own unwanted possessions — clothes, furniture, electronics you genuinely owned and used — is not trading, and it's normally not taxable regardless of the amount, so the trading allowance isn't even the relevant test for a straightforward clear-out. It only comes into play once you're buying to resell, making items to sell, or selling regularly enough that it looks like a small business.

What happens when you go over it

Once gross trading income for the tax year is over £1,000, you need to register for Self Assessment by 5 October after that tax year ends, and file and pay online by the following 31 January. You still get to deduct the £1,000 allowance from your income before working out what's taxable — it doesn't disappear once you're over it, it just stops covering everything on its own.

A worked example

Say you buy secondhand jumpers for £5 each, tidy them up, and resell them on Depop for £15 each. Sell 80 of them across the tax year and your gross trading income is £1,200 — over the allowance — even though your actual profit, after the £400 you spent buying them, is only £800. That £1,200 gross figure is what decides whether you need to register, not the £800 you actually made. This is the single most common way people misjudge the allowance: they think in terms of profit, when the threshold is measured on turnover.

Looking ahead

The government has announced that the reporting threshold for trading income will rise from £1,000 to £3,000 gross. The announcement says this will happen "within this parliament" and doesn't name a tax year, so we don't offer a year in the checker that assumes a start date — when one is published, it goes in.

When it does land, be careful what it changes. It's a change to when you need to file a return, not a rise in how much you can earn tax-free: the trading allowance stays at £1,000. Someone taking £2,500 would no longer need a Self Assessment return, but would still owe tax on the £1,500 above the allowance, payable through a new simpler online service the government says it will set up. "No return needed" and "nothing to pay" are not the same sentence.