Budget 2026 – £3,000 trading allowance from April 2027: what you need to know

Budget 2026 – £3,000 trading allowance from April 2027: what you need to know

If you run your own business as a sole trader, understanding the trading allowance can help you make an informed choice when preparing your accounts and tax return. Budget 2026 announced an increase from £1,000 to £3,000 from 6 April 2027. But a higher allowance does not automatically make it the best option for your business: your turnover, allowable expenses and circumstances all matter.

What is changing, and when?

HMRC’s Budget announcement sets out an increase in the trading allowance to £3,000 for the 2027/28 tax year onwards, starting on 6 April 2027. The trading allowance for the Self-Assessment reporting threshold is due to rise to £3,000 at the same time.

The trading allowance provides relief for eligible individuals with trading or miscellaneous income, including sole traders. It applies to gross income — your business takings before deducting expenses — rather than profit. It is one allowance across your relevant activities, not a separate allowance for each business. Eligibility conditions and exceptions will apply, so it should not be treated as a blanket exemption for every type of income.

Importantly, the £1,000 allowance still applies for both 2025/26 and 2026/27. The usual online filing deadline for a 2025/26 Self-Assessment return is 31 January 2027; for 2026/27 it is 31 January 2028. The announced increase does not apply to either of those tax years. Even if your trading income falls within the relevant allowance, you may still need to file a return for another reason.

Trading allowance or actual expenses?

For a sole trader, the key question is whether the allowance or actual allowable business expenses gives the more appropriate result. You cannot deduct both against the same income. Compare your allowable costs with the allowance for the relevant tax year rather than assuming the higher allowance will reduce your tax bill. If your costs exceed the allowance, claiming actual expenses may be more beneficial. If your business has made a loss, seek advice before choosing how to report it. This is where your accountant can advise you.

What should you do now?

• Keep complete records of your business takings so you can establish your gross trading income before expenses.
• Retain business invoices and receipts so you can compare your actual allowable expenses with the trading allowance.
• Separate records by tax year: the higher allowance is not due to start until 6 April 2027.
• Check whether you need to register for Self-Assessment or file a return under the rules for the relevant year.
• Review the position when preparing your sole trader accounts, particularly if your turnover or costs have changed or your business has made a loss.

Need your accounts completed? Speak to Kennedys Accounting

Need your sole trader accounts completed or help with your Self-Assessment tax return? Contact Kennedys Accounting to discuss your business, your filing deadline and the support you need. We can help you understand whether the trading allowance or actual allowable expenses is appropriate for your circumstances. Get in touch with a summary of your business income and expenses to discuss the next steps.

Information checked on 4 November 2026. This article provides general information, not personalised tax advice. Budget announcements may be subject to legislation; eligibility, other filing obligations and individual circumstances should be checked before taking action.