The New £3,000 Trading Allowance — Will You Still Need to File a Tax Return?

The Autumn Budget on 29 October 2026 confirmed a change that will take a large number of people out of Self Assessment altogether. From the 2027-28 tax year, the trading allowance rises from £1,000 to £3,000 — and the Self Assessment reporting threshold rises with it.

If you earn a modest amount on the side, this is probably the most relevant tax announcement of the year for you. It is also widely misunderstood, and very easy to confuse with the Making Tax Digital thresholds, which are a completely different thing measuring a completely different number.

Here is what actually changes, when, and who it affects.

The quick answer

Nothing changes for the current tax year. The return you file by 31 January 2028, covering 2026-27, still uses the £1,000 figure. The new allowance applies to income you earn from 6 April 2027 onwards.

What the trading allowance actually is

The trading allowance is a flat amount of self-employed or casual income you can earn in a tax year without paying tax on it.

It covers what HMRC calls trading or miscellaneous income — money that is not a salary. Freelance work, selling things you make, tutoring, dog walking, delivery driving, renting out equipment, income from content.

Two things people consistently get wrong:

1. It is measured on income, not profit. The allowance is tested against your gross income, before you take a single expense off. If you turned over £3,500 and spent £900 on materials, your gross income is £3,500 — not £2,600.

2. It is either/or. You can claim the trading allowance or deduct your actual business expenses. Never both. More on why that matters below.

Who stops having to file

From 6 April 2027, if your gross trading income for the year is £3,000 or less, and you have no other reason to complete a Self Assessment return, you will not need to file one.

You will still need to file if any of these apply:

• You have rental income above the property allowance
• You are a company director
• You have untaxed income from other sources
• You need to pay the High Income Child Benefit Charge
• You have capital gains to report
• HMRC has issued you a notice to file

In other words, the change removes the trading income reason for filing. It does not remove any of the others.

The trap: this is not the Making Tax Digital threshold

This is the one to get straight, because the two numbers are going to be discussed in the same breath for the next two years and they measure different things.

A worked example. You earn £8,000 freelancing and nothing else.

• £8,000 is above £3,000, so yes, you file a tax return.
• £8,000 is below £20,000, so no, you are not in Making Tax Digital — not in 2026, not in 2027, not in 2028.

You do an ordinary annual Self Assessment return, the way you always have. Being above the filing threshold does not put you into quarterly reporting.

The £3,000 decision: allowance or expenses?

Here is where it gets practical, and where people will quietly lose money.

From April 2027 you choose, every year, one of two routes:

• Claim the £3,000 trading allowance and pay tax on everything above it, with no deductions at all, or
• Claim your actual allowable expenses and pay tax on the resulting profit.

Take a business turning over £10,000 with £4,200 of genuine costs:

Expenses win, by £1,200 of taxable profit.

Now the same £10,000 turnover, but a leaner business with only £1,900 of costs:

The allowance wins, by £1,100.

The rule of thumb: if your annual expenses come to less than £3,000, claim the allowance. If they come to more, claim the expenses.

And here is the part that gets missed. You cannot know which side of that line you are on unless you have actually tracked your expenses. A bigger allowance is not a reason to stop keeping records — it is the reason you need them, because the allowance only saves you money if you can prove your costs were smaller than it.

What to do now

1. For 2026-27, change nothing. The current £1,000 rules apply to the return due 31 January 2028.
2. If your side income is between £1,000 and £3,000, you are likely to drop out of Self Assessment from April 2027. Keep filing until then — the change is not retrospective.
3. Keep tracking your expenses through 2027-28, even if you expect to claim the allowance. It is the only way to know the allowance is the better deal.
4. If your gross income is anywhere near £20,000, Making Tax Digital matters far more to you than the trading allowance does. Digital records and quarterly reporting are the bigger change.

Summary

• The trading allowance rises from £1,000 to £3,000 from 6 April 2027 (the 2027-28 tax year)
• The Self Assessment reporting threshold for trading income rises to £3,000 at the same time
• No change for 2026-27 — the return due 31 January 2028 still uses £1,000
• The threshold is measured on gross income, not profit
• You claim the allowance or your expenses, never both
• It is not the Making Tax Digital threshold — those are £50,000, £30,000 and £20,000, and they measure self-employment and property income combined
• Announced at Autumn Budget 2026 on 29 October 2026