Policy paper

Increasing the trading allowance

Published 28 October 2026

Who is likely to be affected 

Individuals with small amounts of trading or miscellaneous income, such as from providing goods or services. 

General description of the measure 

This measure increases the amount of the trading allowance from £1,000 to £3,000.

Policy objective 

The government is increasing the trading allowance to £3,000 from 6 April 2027.

This will increase the amount of relief provided by the allowance to £3,000, alongside increasing the Income Tax Self Assessment reporting threshold to £3,000.

The measure is intended to provide additional income tax relief for individuals with trading or miscellaneous income and to further simplify the tax treatment of small-scale business activities. By increasing the amount of income that is covered by the allowance, the measure will reduce the number of individuals required to calculate taxable profits or submit a Self Assessment tax return to HMRC in respect of this income, thereby reducing administrative burdens.

Background to the measure 

The trading allowance enables individuals to earn small amounts of trading and miscellaneous income tax-free. The government is increasing the allowance from April 2027 to provide further support for small-scale entrepreneurship and those starting new business activity. 

At the tax update in spring 2025, the government announced that the Income Tax Self Assessment reporting threshold for trading income would be increased to £3,000 by the end of this Parliament.

This increase will now be implemented from 6 April 2027. 

Detailed proposal 

Operative date 

This measure will have effect from 6 April 2027, for the tax year 2027 to 2028 onwards. 

Current law

Current law is contained in Chapter 1, Part 6A Income Tax (Trading and Other Income) Act 2005.

Proposed revisions 

Legislation in the Finance Bill 2026-27 will change the current law in Chapter 1, Part 6a Income Tax (Trading and Other Income) Act 2005, increasing the trading allowance from £1000 to £3000. 

Summary of impacts 

Exchequer impact (£ million) 

2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031	2031 to 2032
—	—	-225	-165	-175	-180

These figures are set out in Table 6.1 of Budget 2026 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2026. 

Economic impact 

This measure is not expected to have any significant macroeconomic impacts. 

Impact on individuals, households and families 

This measure is expected to have an impact on individuals with small amounts of trading and miscellaneous income. 

Up to 1.4 million individuals could potentially benefit from the trading allowance either from a reduction in their tax bill or from administrative simplification.

Of the 1.4 million individuals who could potentially benefit, 400,000 individuals are estimated to have a reduction in their tax bill of £380 on average and 100,000 individuals are estimated to no longer need to report their trading income to HMRC in line with the increased reporting threshold. 

This measure is expected overall to impact individuals’ experience of dealing with HMRC as it will reduce administration associated with small-scale trading and other miscellaneous activities. 

This measure is not expected to impact on family formation, stability or breakdown.

Equalities impact 

This measure may apply to individuals irrespective of protected characteristics, and any protected groups that are overrepresented could therefore be disproportionately impacted. 

Individuals aged between 35 and 64 are estimated to be overrepresented (62%) in the impacted population, compared to their prevalence in the UK adult population (46%). 

Where data were available no other protected groups were estimated to be overrepresented in the population. 

Administrative impact on business including civil society organisations 

The additional one-off cost of this measure is expected to be negligible.

Increasing the trading allowance, by increasing the tax free amount and increasing the Income Tax Self Assessment reporting threshold, is expected to deliver significant ongoing saving for individuals with trading or miscellaneous income. These savings will arise from reducing the number of individuals required to submit a tax return and, for those who continue to do so, from simplifying the calculation of expenses as a result of the increased allowance. 

The ongoing cost of this measure is estimated to be negligible as affected businesses will not experience any further burden beyond that which they experience currently. 

This measure is expected to have no impact on civil society organisations as it only affects businesses where the proprietor reports their business income through Self Assessment. 

Estimated on-going impact on administrative burden (£ million) 

Ongoing average annual impact	(£ million)
Costs	negligible
Savings	15.7
Net impact on annual administrative burden	-15.7

Operational impact 

The cost to update HMRC information technology systems for this change is estimated at £725,000.

Other impacts 

Other impacts have been considered and none have been identified. 

Monitoring and evaluation 

Consideration will be given to monitoring and evaluating trading allowance usage and the simplification of tax administration for individuals after sufficient monitoring data have been analysed and collected. 

Further advice 

If you have any questions about this change, contact the Business Profits Team by email at businessprofits.admin@hmrc.gov.uk and include ‘Trading Allowance’ in the subject line of the email.