Do I need to tell HMRC if I earn less than £1,000 as a sole trader?

Do I need to tell HMRC if I earn less than 1,000 as a sole trader?

If you’re starting out as a freelancer, side-hustler, or self-employed person in the UK, one of the first questions you’ll probably ask is: “Do I need to tell HMRC if I earn less than £1,000?” It’s a sensible question because £1,000 is not just a nice round number. It connects to a specific UK tax rule often called the “trading allowance.”

The short version is that earning under £1,000 in gross trading income (not profit) can mean you don’t have to register for Self Assessment or report that income, depending on your circumstances. But the longer version matters, because the details can change the answer. What counts as “trading income”? What if you have other self-employed income? What if you want to claim expenses? What if you also rent out a room or sell online? What if your income is under £1,000 but you still owe tax for other reasons?

This article walks you through the rules in plain English, explains common scenarios, and helps you decide whether you should tell HMRC, register for Self Assessment, or keep things simple and just keep good records for now.

Understanding the £1,000 trading allowance

The £1,000 trading allowance is a tax-free allowance that applies to some types of “trading” income. Trading income generally means money you earn from providing goods or services, doing freelance work, carrying out jobs for clients, or running a small business activity on your own account.

The key point is that the £1,000 threshold refers to your gross income (your total takings), not your profit after expenses. For example, if you made £900 from freelance design work, that’s £900 gross trading income. If you made £900 but spent £600 on software and equipment, you still made £900 gross income (profit is separate).

If your total gross trading income in a tax year is £1,000 or less, the trading allowance can cover it in a way that often means there is no tax to pay and, in many cases, no need to register for Self Assessment purely because of that trading income.

Gross income vs profit: why this matters

This is one of the most important distinctions for people new to self-employment. HMRC’s £1,000 allowance is based on gross income, not profit. That means you look at all the money you received from your self-employed activity in the tax year.

Here’s a simple example:

• You earn £950 from a few small photography gigs.
• You spend £300 on travel, props, and editing software.
• Your profit is £650, but your gross income is £950.

Because your gross trading income is under £1,000, you may not need to tell HMRC about that income, depending on your overall situation. But if your gross income was £1,050 (even if your profit was only £200), the £1,000 threshold would be exceeded and you would generally need to consider reporting it.

So, do you need to tell HMRC if you earn less than £1,000?

In many straightforward cases, if your total gross trading income for the tax year is £1,000 or less, you do not have to register for Self Assessment or report that self-employed income to HMRC.

However, “many cases” is not “all cases.” There are situations where you might still need to tell HMRC even if your sole trader income is below £1,000, and there are situations where you might choose to tell HMRC because it benefits you.

Think of the £1,000 trading allowance as a simplification rule for small amounts of self-employed income. It’s designed to reduce paperwork for very small-scale trading. But other rules can override the simplicity.

When you usually don’t need to register or report

You will often not need to tell HMRC about your self-employed activity if all of the following are true:

• Your total gross trading income from self-employment is £1,000 or less in the tax year.
• You have no other reasons to file a Self Assessment tax return (for example, you’re not required to file because of other income types, capital gains, or other criteria).
• You are happy to use the trading allowance instead of claiming expenses (because you generally can’t use both in the same way for the same income).

If that’s you, the practical takeaway is: keep good records, monitor your income, and only register if you go over the threshold or have another reason to file.

When you might still need to tell HMRC (even under £1,000)

Even if your trading income is under £1,000, you might still need to register for Self Assessment or file a tax return due to other factors. Here are common examples.

You have other untaxed income that requires Self Assessment

Self Assessment isn’t only for sole traders. Some people need to file for other reasons, such as certain types of investment income, significant savings interest, foreign income, capital gains, or other circumstances that require a tax return.

If you already have to file a tax return for some other reason, then you may need to include your trading income on the return, even if it’s under £1,000. In that scenario, the £1,000 trading allowance can still be relevant, but it becomes part of how you complete your return rather than a reason to avoid reporting entirely.

You want to claim expenses instead of using the allowance

The trading allowance is optional. Sometimes it’s better to report your income and claim actual allowable business expenses, particularly if your expenses are more than £1,000 or if you made a loss and want that loss to count for tax purposes.

For example:

• You earn £900 gross from a small online business.
• You spent £1,500 on stock, fees, and setup costs.
• You made a loss of £600.

In a case like that, using the £1,000 trading allowance might not be helpful because it doesn’t let you claim your actual expenses or register a loss in the same way. If you want to claim that loss (for example, to offset against other income in certain circumstances), you may need to register and file a return, even though your gross income is under £1,000.

You have more than one source of trading income

The £1,000 threshold generally looks at your total trading income, not each little activity separately. If you have multiple small gigs, side projects, or streams of self-employed income, you usually add them together.

For example:

• £400 from tutoring
• £350 from a bit of copywriting
• £300 from selling handmade items

Total trading income: £1,050. In that case, you’ve crossed the £1,000 threshold and should not assume you can ignore it. Once you exceed £1,000 gross trading income in a tax year, you generally need to engage with HMRC’s reporting rules (usually by registering for Self Assessment and filing a return, unless another reporting mechanism applies in your circumstances).

You’re dealing with benefits, grants, or compliance requirements

Sometimes the question “Do I need to tell HMRC?” isn’t the only compliance question. If you are receiving certain benefits, grants, or support schemes, you may have obligations to report income changes to other bodies (for example, to a local authority or DWP). That is separate from tax reporting, but it can still matter to your overall situation.

In addition, if you’re applying for a mortgage or tenancy and want to show self-employed income formally, you may prefer to report it even if small, although that depends on the lender’s requirements and what documentation they accept.

How the trading allowance works in practice

It helps to think of the trading allowance as one of two approaches to calculating what’s taxable from your self-employed activity:

1) Use the trading allowance (a flat £1,000 deduction).
2) Claim actual allowable expenses instead.

If your gross trading income is £1,000 or less and you use the allowance, that income is typically fully covered and effectively becomes non-taxable. If your gross trading income is more than £1,000, you can still use the allowance, but only as a deduction, and only if it is beneficial.

Example:

• Gross trading income: £2,500
• Option A: Use trading allowance of £1,000 → taxable amount (before other factors) is £1,500
• Option B: Claim actual expenses of £1,400 → taxable amount is £1,100

In this example, claiming actual expenses might reduce taxable profit more. But if actual expenses were only £300, the £1,000 allowance might be better. The allowance is most useful for low-expense, small-scale trading.

What “sole trader” means for HMRC purposes

A sole trader is a self-employed individual who runs their business as an individual rather than through a limited company. You and the business are essentially the same legal entity. That means:

• The income belongs to you personally.
• You generally pay Income Tax on your profits (after allowances and deductions).
• You may pay National Insurance contributions depending on your profit level and the rules in force for that tax year.
• You are responsible for keeping records and reporting when required.

When people ask whether they need to “tell HMRC,” they typically mean whether they need to register for Self Assessment and submit a tax return as a self-employed person.

Tax year timing: which year does your £1,000 relate to?

The UK tax year runs from 6 April to 5 April the following year. Your £1,000 threshold is measured within that tax year window, not by calendar year and not by your “start date” anniversary.

This matters when you start trading near the end of a tax year. For example, if you begin freelancing in February and make £900 by 5 April, you may be under the threshold for that tax year. But if you continue and earn another £900 between 6 April and the next 5 April, that’s a separate tax year with its own threshold analysis.

Always track your income against the tax year dates so you don’t get caught out by a sudden threshold crossing in the next year.

What counts as “income” for the £1,000 threshold?

Generally, the relevant figure is the total amounts you received for your trade. That includes cash payments, bank transfers, card payments, and sometimes non-cash benefits if you’re paid in kind.

It’s not just what you invoiced, but what you actually received can matter depending on your accounting basis. Many very small sole traders use a cash basis approach where income is recognized when received and expenses are recognized when paid. However, you should keep records of invoices and receipts regardless so you can explain your numbers.

If you’re selling goods, the income is usually your total sales proceeds, not just the markup. If you’re providing services, it’s the fees you received.

Common real-life scenarios (and what they usually mean)

Scenario 1: A small side hustle alongside a PAYE job

You work full-time and pay tax through PAYE. You did some freelance work on weekends and earned £700 in the tax year. You have no other complex tax issues.

In many cases, you won’t need to register for Self Assessment just because of that £700, because it’s under the £1,000 trading allowance. Still, keep evidence of the income and track it in case your side hustle grows next year.

Scenario 2: You made £950 but want to claim expenses of £400

You earned £950 from your new business. You spent £400 on allowable costs. If you use the £1,000 trading allowance, you typically wouldn’t pay tax on the trading income and may not need to file. But if you file and claim expenses, your profit is £550, which may still fall under personal allowances depending on your overall income. The difference might not change your tax bill, but it could matter for other reasons (like establishing a loss, or demonstrating business activity).

In many cases, if your goal is simplicity and you don’t need the loss or deductions for a specific reason, using the allowance and not filing can be the cleanest approach. If you want the formal record or there are other reasons to file, reporting can still be reasonable.

Scenario 3: You sold items online as a one-off clear-out

Not all selling is “trading.” If you are simply selling personal possessions (like your old clothes, books, or a used laptop) at a loss or for less than you paid, that often isn’t trading income. The £1,000 trading allowance is focused on trading activity, not casual disposal of personal items.

But if you regularly buy items with the intention of reselling them for profit, that starts to look more like trading. In that case, your gross sales can count toward the £1,000 threshold.

Scenario 4: You earned £600 from freelancing, and £600 from another gig

This is where people get surprised. Two small amounts can add up. If both are trading income, you’re likely over £1,000 and you may need to register and report. Don’t assume each activity gets its own £1,000 allowance.

Scenario 5: You earned £900, but you also have rental income

Rental income is not trading income. It’s a different category. There is a separate property allowance in the UK that can apply to some types of property income, but it’s not the same as the trading allowance. Your need to register for Self Assessment might be affected by rental income, depending on amounts and how your tax is handled overall.

The key takeaway: look at your full financial picture, not just the sole trader figure.

What about National Insurance if you earn under £1,000?

Many people assume that if they don’t pay Income Tax, they also don’t need to think about National Insurance. In practice, National Insurance for self-employed people is generally connected to profits and specific thresholds, and the rules can shift over time. If your profits are very low, you may not owe National Insurance, but you might still choose to pay voluntary contributions in some circumstances (for example, to protect entitlement to certain benefits or the State Pension).

This is one area where personal circumstances matter. If you are below the trading threshold and not registering, you’re also likely not making National Insurance contributions through self-employment. Whether that is a problem depends on your wider NI record (for example, from PAYE employment) and your long-term plans.

Keeping records even if you don’t tell HMRC

Even if you don’t need to register or report because your income is below £1,000, it’s still wise to keep records. Good record-keeping helps you:

• Prove what you earned if HMRC asks questions later.
• Track when you cross the threshold in the future.
• Understand whether your activity is profitable and worth continuing.
• Prepare for Self Assessment if your income grows.

A basic record system can be as simple as:

• A spreadsheet with dates, clients, amounts received, and payment method.
• Copies of invoices and receipts (digital copies are fine).
• Bank statements showing income deposits.
• Notes about what the work was and when it was done.

If you have a separate bank account for your self-employed income and expenses, it becomes much easier to track everything, even if you’re small-scale.

What happens if you go over £1,000?

If your gross trading income goes over £1,000 in a tax year, you generally move out of the “ignore it” zone and into “you need to take action” territory. The action is usually to register for Self Assessment as self-employed and submit a tax return for that year.

It’s important to act promptly if you cross the threshold, because there are deadlines for registration and filing. Missing deadlines can lead to penalties, even if you don’t ultimately owe much tax.

If you think you might go over £1,000, it’s often easier to prepare early. Keep tidy records from the start, set aside money for possible tax, and learn the basics of allowable expenses and business income.

Should you register anyway, even if you’re under £1,000?

Sometimes, yes. While many people can keep things simple under the trading allowance, there are situations where voluntary registration and filing can make sense. Here are a few reasons people choose to register even when their income is under £1,000:

• You made a loss and want it formally recorded, potentially to use against other income (where rules allow).
• You want to establish a clear track record of self-employment income for applications (though not all institutions care about a tax return for tiny amounts).
• You expect income to grow soon and you want to get comfortable with the system early.
• Your financial situation is complex and you’d rather be fully transparent and tidy.

However, you should also weigh the downside: registering and filing creates ongoing admin, and you must keep up with deadlines. If the trading allowance genuinely covers your income and you don’t need to file for other reasons, staying unregistered can be simpler.

How to estimate whether you’ll cross the threshold

If your income is irregular, it can be hard to know whether you’ll cross £1,000. A simple approach is to track your running total for the tax year each month.

Ask yourself:

• How much have I received so far this tax year (6 April to 5 April)?
• Do I have upcoming work booked or seasonal spikes?
• Am I likely to take on more clients or raise my prices?
• Do I have multiple small income sources that add up?

If you’re sitting at £700 by October, it’s very plausible you’ll cross £1,000 by April if you keep going. That doesn’t mean you must register immediately in every knowable case, but it does mean you should be prepared and understand the next steps.

What if you accidentally don’t tell HMRC?

People worry about getting into trouble for honest mistakes. The best way to avoid problems is to monitor your income and act once you know you’ve crossed the threshold or have another reason to file.

If you later realize you exceeded £1,000 gross trading income in a tax year and didn’t register or report, you should deal with it promptly. In many cases, putting things right quickly is treated more favorably than ignoring it. The specifics of what you should do depend on your exact situation, including whether you owe any tax and how late things are.

The practical message is: don’t panic, but don’t procrastinate either. Get your records together and take steps to report correctly.

Other allowances that can be confused with the trading allowance

The £1,000 trading allowance often gets mixed up with other rules. Keeping the categories straight helps you avoid mistakes.

The Personal Allowance

The Personal Allowance is the amount of income you can earn before paying Income Tax (subject to eligibility and income levels). This is separate from the trading allowance. You can have both in play: your profits might fall within your Personal Allowance, and the trading allowance might simplify how you calculate taxable trading income. But they are not the same threshold and they don’t replace each other.

The property allowance

There is a separate allowance for certain property income. If you have rental income, that uses different rules. Don’t assume the trading allowance covers property income, and don’t assume the property allowance covers trading income.

Employment income under PAYE

If you have a job, tax is usually deducted at source. That doesn’t automatically cover your self-employed income. The trading allowance can mean you don’t need to do anything for very small self-employed amounts, but PAYE and self-employment are still separate concepts.

Practical checklist: deciding what to do

If you want a quick, practical way to decide your next step, work through this checklist:

1) Add up your total gross self-employed trading income for the tax year.
2) If it’s £1,000 or less, ask whether you have any other reason you must file a tax return.
3) Consider whether you want to claim expenses or losses instead of using the allowance.
4) If you’re comfortably under £1,000 and have no other filing requirement, keep records and monitor income.
5) If you’re over £1,000, prepare to register for Self Assessment and report your income properly.

This keeps you focused on the core decision points without getting lost in technicalities.

Tips for staying compliant with minimal stress

Even with small income, a few habits make everything easier:

• Track every payment as it comes in. Don’t rely on memory.
• Keep digital receipts for any business costs, even if you might use the trading allowance this year. You may need them later if your income grows.
• Put aside a portion of income just in case you owe tax later, especially if you expect to cross £1,000.
• Know the tax year dates and don’t mix them up with calendar months.
• Review your totals quarterly so you have time to react.

Doing these things early prevents the end-of-year remember-and-scramble that so many new sole traders experience.

Final thoughts

If you earn less than £1,000 in gross trading income as a sole trader in a UK tax year, you often won’t need to tell HMRC or register for Self Assessment solely because of that income. The trading allowance is designed to make tiny self-employed side projects simpler and reduce paperwork.

But you should still take the question seriously, because the £1,000 rule isn’t a blanket “you never need to do anything” promise. If you have multiple income streams, other reasons to file a tax return, or you want to claim expenses or losses, the right move might be different. The safest approach is to keep clear records, monitor your running total, and be ready to register if you cross the threshold or your situation changes.

If you treat your self-employed income like a real business from day one—even a small one—you’ll find it much easier to stay compliant, avoid surprises, and grow your earnings without fear of getting the tax side wrong.