Trading allowance triples to £3,000 from April 2027

From 6 April 2027 people can earn up to £3,000 a year from trading or miscellaneous income tax-free, three times the current £1,000. The Self Assessment reporting threshold for trading income rises to £3,000 at the same time, so someone whose only extra income is a small side business under that amount will not need to tell HMRC about it. The change was announced in Budget 2026 and will be legislated in Finance Bill 2026-27.

What was announced

The Chancellor said in his Budget speech: “for those just starting out, I’m tripling the trading allowance, the amount you can earn from a new venture tax-free, from £1,000 to £3,000”. HMRC’s tax information and impact note confirms:

• the trading allowance increases from £1,000 to £3,000 from 6 April 2027, for 2027-28 onwards
• the allowance covers trading income and miscellaneous income
• the Income Tax Self Assessment reporting threshold for trading income rises to £3,000

The change delivers a commitment made at the spring 2025 tax update to raise the reporting threshold to £3,000 by the end of this Parliament. The Budget papers only change the trading allowance. The separate £1,000 property allowance is not part of this measure.

How the allowance works

The allowance applies to gross income, before expenses. There are two ways it helps:

• Full relief. If gross trading income for the year is £3,000 or less, it is all covered. There is no tax to pay and, unless there is another reason to file, nothing to report.
• Partial relief. If gross income is more than £3,000, the individual can deduct £3,000 instead of their actual expenses. This is worth doing where real costs are below £3,000.

GOV.UK guidance says the allowances cannot be used in a year in which you have trading income from a company you or someone connected to you owns or controls, a partnership where you or someone connected to you is a partner, or your employer or your spouse’s or civil partner’s employer. Partnership trading income is excluded. The Budget does not change those rules.

Worked examples

Small side business. A client sells handmade goods with gross income of £2,500 and costs of £300. In 2026-27 they must report it, and the best option is to deduct the £1,000 allowance, leaving £1,500 taxable: £300 of tax at 20%. In 2027-28 the whole £2,500 is covered by the £3,000 allowance, so there is no tax and no need to report it.

Freelancer with low costs. A basic rate taxpayer has gross freelance income of £8,000 and actual expenses of £1,500. In 2027-28 they can deduct the £3,000 allowance instead, so taxable profit is £5,000 rather than £6,500. That saves £300 of income tax at 20%.

Who benefits

HMRC estimates up to 1.4 million people could benefit, through a lower tax bill or simpler administration. Of these, around 400,000 are expected to see their tax bill fall, by £380 on average, and around 100,000 will no longer need to report their trading income. The Treasury puts the cost at £225 million in 2028-29 and £180 million a year by 2031-32.

What it means for accountants and their clients

Some low-value clients may drop out of Self Assessment. People who file only because of a small side income between £1,000 and £3,000 may not need a return from 2027-28. They still need to file for 2026-27 under the £1,000 rule, with that return due by 31 January 2028. ICAEW notes that HMRC’s simplified online reporting service remains available for people below the threshold.

Check other reasons to file. The allowance does not remove the need to file where there is another trigger, such as a high income child benefit charge, untaxed income or capital gains. Review the full picture before telling a client they can stop filing.

Think about the National Insurance record. A client whose small trade is fully covered by the allowance may have no reported profits. Anyone relying on self-employment to build qualifying years for the State Pension should check their position, including voluntary contributions, before dropping their registration.

Online sellers are still visible to HMRC. Digital platforms already report sellers’ income to HMRC, so clients should be confident their figures are right rather than assuming small amounts go unnoticed.

Compare with expenses each year. For clients with income above £3,000, check every year whether the allowance or actual expenses gives the lower profit. The allowance cannot create a loss.

For a wider view of how Budget 2026 affects small businesses, see Budget 2026 for sole traders and the self-employed, and our guides to sole trader tax and who needs to file a tax return.

Frequently asked questions

When does the £3,000 trading allowance start?

From 6 April 2027, for the 2027-28 tax year onwards. For 2026-27 the allowance and the reporting threshold remain £1,000.

Does the £3,000 allowance apply to rental income?

No. The Budget papers only increase the trading allowance, which covers trading and miscellaneous income. Rental income uses the separate £1,000 property allowance, which is not changed by this measure.

Do I need to register for Self Assessment if my side income is £2,000?

For 2026-27 you do, because gross trading income is over £1,000. From 2027-28 you will not need to report it if your gross trading income is £3,000 or less and you have no other reason to file.

Can partners in a partnership use the trading allowance?

No. GOV.UK guidance says the allowance does not apply to trading income from a partnership, and it cannot be used in a year in which you have income from a partnership where you or someone connected to you is a partner.