The £1,000 trading allowance: who can use it, and when not to

Earn £1,000 or less

If your self-employed income is £1,000 or less in a tax year, before costs, you don't need to tell HMRC or pay tax on it. Keep a record anyway.

Earn more than £1,000

You must register for Self Assessment. You can then either take £1,000 off your income instead of claiming your actual costs, or claim your actual costs. Not both.

Which is better?

• Costs under £1,000 a year: the allowance gives you the bigger deduction
• Costs over £1,000: claim your actual costs
• A van, tools and materials put most tradespeople well over £1,000, so they should claim costs
• You can choose each year

A worked example

• Weekend work bringing in £4,000, with £300 of costs: the allowance leaves £3,000 to pay tax on, costs would leave £3,700
• Full-time work bringing in £40,000 with £9,000 of costs: costs leave £31,000, the allowance would leave £39,000

Who can't use it

You can't use it on income from a company you control, from a partnership you're a partner in, or from your employer or your partner's employer, for example doing jobs on the side for the firm you work for.

Making a loss

If your costs are more than your income, claim your costs instead, so you can use the loss against other income.