The trading allowance is simple, but it is not always the best choice. If your side-hustle expenses are higher than the allowance, actual expenses may reduce your taxable profit more.
Quick answer
If your gross trading income is £1,000 or less, GOV.UK says you may not need to tell HMRC unless an exception applies. If your gross trading income is above £1,000, you generally need to look at Self Assessment and decide whether the trading allowance or actual expenses gives the better result.
Run the numbers: use the UK Side-Hustle Tax Calculator to compare trading allowance vs actual expenses.
What is the trading allowance?
GOV.UK describes the trading allowance as a tax exemption of up to £1,000 a year for individuals with trading income from self-employment, casual services, or hiring personal equipment. If your income is above the allowance, you can deduct up to £1,000 instead of claiming actual expenses.
When the trading allowance is usually better
- Your side hustle has low or no expenses.
- You want a simpler calculation.
- Your real expenses are below £1,000.
- You do not need to create or use a business loss.
When actual expenses are usually better
- Your costs are more than £1,000.
- You buy materials, software, mileage, equipment, packaging, or advertising.
- You need a more accurate profit figure.
- You may have a loss that needs proper tax treatment.
Records still matter
Even if the allowance keeps the calculation simple, GOV.UK says you must keep records of income. For actual expenses, keep receipts, invoices, mileage logs, and bank statements that support the figures you use.
Bottom line
The trading allowance is convenient, not automatically optimal. If you spent more than £1,000 to earn the income, actual expenses often deserve a closer look.
