£1,000 Trading Allowance for eBay Sellers Explained

The £1,000 trading allowance is one of the most quoted and most misunderstood numbers in UK selling. It gets described as "the first £1,000 you earn is tax-free", which is roughly right for someone selling a few things and badly wrong for someone buying stock to resell. Both sentences contain the word "earn", but the allowance counts something different from what most people mean by it, and it also works as a choice between two ways of calculating profit, not as a free gift stacked on top of your costs.

This post explains what the allowance counts, the two ways it can apply (full relief and partial relief), when it saves tax, when it quietly costs you tax, and the situations where it cannot be used at all. It uses GOV.UK guidance, the legislation and HMRC's own Business Income Manual, checked in October 2026. All worked numbers are illustrative.

The short version

The allowance is £1,000 per tax year for trading income, and a separate £1,000 for property income. GOV.UK gives both.
If your gross trading income is £1,000 or less, you generally do not need to tell HMRC, though you must keep records.
If it is more than £1,000 you must register for Self Assessment. You can then either deduct up to £1,000 or deduct your actual expenses, but not both.
The allowance wins when your real expenses are below £1,000. Actual expenses win when they are above it. For a reseller buying stock, they often are.
Gross means before any expenses. Selling £1,100 of goods that cost you £700 is still £1,100 for this test.
Some income is excluded, for example payments from your employer, so check before relying on it.

1. What the allowance actually is

GOV.UK describes the trading allowance as applying to individuals with up to £1,000 a year of trading income from self-employment, casual services such as babysitting or gardening, or hiring out personal equipment such as power tools. The legislation sets the amount at £1,000 for a tax year (section 783AD of the Income Tax (Trading and Other Income) Act 2005, in the Part 6A that deals with trading and property allowances). The tax year runs from 6 April to 5 April.

It is a relief that changes how your profit is calculated. It is not a rule that exempts the first £1,000 of profit. That distinction matters for everything that follows.

This post deals only with trading income, which is what eBay selling produces.

2. Which numbers count towards the £1,000

GOV.UK defines gross income as the total you would report on your tax return before any allowances or expenses are taken off. HMRC's Business Income Manual says the same thing in its own terms: relevant income is receipts from trading plus miscellaneous income, measured "before any expenses are deducted". The starting point is receipts, not profit.

Two practical consequences follow for sellers.

Cost of stock does not lower the figure. If you sell £1,100 of goods that cost £700, your gross trading income is £1,100. You are over the line, even though your profit is £400.
Everything is added together. The manual's rule on full relief refers to total relevant income from all relevant trades plus miscellaneous income. If you sell on eBay and also run another small trade, the receipts are tested together against the one allowance.

The manual also says goods and services you take for your own use are included in relevant income. If you pull stock out of a business for yourself, check how that is treated before assuming it is invisible. Beyond that, the manual page says nothing specific about how postage charged to buyers, platform fees or refunds are treated. Do not guess; use the GOV.UK guidance and ask HMRC if your figures sit close to the line.

If you are still deciding whether your selling counts as trading at all, our post on what separates a hobby from a shop covers HMRC's badges of trade. The allowance only matters once the activity is trading.

3. Full relief: £1,000 or less

If your gross trading income for the year is £1,000 or less, full relief applies. GOV.UK says that in this case you generally do not need to tell HMRC, but you must keep records of the income. HMRC's Business Income Manual sets out the effect: the profit or loss of each relevant trade is treated as nil.

Full relief is useful and also blunt. Because profits are treated as nil, so are losses. If you spent £900 on stock and sold none of it, you cannot use that cost as a loss while full relief applies. GOV.UK lists wanting to claim loss relief as a reason to register for Self Assessment, and HMRC's manual says individuals can elect for full relief not to apply by completing their Self Assessment return. If you have a genuine loss and want to record it, that election is the route to ask about.

The election has a deadline. HMRC's manual says it must be made on or before the first anniversary of the 31 January following the tax year. Applying that to 2025 to 2026 on our reading, the filing date is 31 January 2027, so the election could be made by 31 January 2028. Check the current manual or ask HMRC before relying on that date.

Nothing in full relief changes what the platform does. eBay's UK help page says that if your total income from trading online was less than £1,000 (before deducting expenses) in a tax year, you would not be required to inform HMRC or pay tax on the profits because of the allowance, while also stating that its own reporting thresholds relate only to whether eBay must report your data. We explain those thresholds in what eBay tells HMRC.

4. Partial relief: over £1,000

If gross trading income is more than £1,000, full relief is not available and you must register for Self Assessment (GOV.UK sets 5 October after the tax year as the deadline; our guide to registering as a sole trader walks through it). You then choose between two calculations.

Normal rules: take your gross income and subtract your actual allowable expenses.
Partial relief: take your gross income and subtract the trading allowance, which is up to £1,000. You cannot deduct any actual expenses as well.

GOV.UK says that if you claim the allowance you cannot also deduct other expenses or allowances, and that the deduction cannot exceed your income. It also says that if your expenses are higher than your income, claiming expenses may be better. The manual says the election for partial relief is made by completing a Self Assessment return, and that it is up to the individual to decide for each period whether to claim the allowance or deduct expenses.

The rule of thumb that falls out of this is simple. When gross income is over £1,000, the allowance deducts £1,000. Whichever deduction is larger leaves the smaller taxable profit. So partial relief is better when your real expenses are below £1,000, and expenses are better when they are above it.

5. Worked examples

These numbers are invented to show the mechanism. They are not typical results and they ignore other income.

Illustrative gross income	Actual expenses	Taxable profit using the allowance	Taxable profit using actual expenses	Lower taxable figure
£1,500	£600	£500	£900	Allowance (by £400)
£1,500	£1,000	£500	£500	Equal
£1,500	£1,400	£500	£100	Expenses (by £400)
£4,000	£3,400	£3,000	£600	Expenses (by £2,400)
£2,000	£2,600	£1,000	Loss of £600	Expenses

Each row is simple arithmetic. In the first row, £1,500 minus £1,000 is £500, and £1,500 minus £600 is £900. In the last row, the allowance leaves £2,000 minus £1,000, which is £1,000 of taxable profit, whereas the real costs produce a £600 loss. A loss can matter in later years, which is why GOV.UK says registering is required if you want to claim loss relief.

What the tax difference looks like

For 2026 to 2027, GOV.UK gives a Personal Allowance of £12,570 and a 20% basic rate on income from £12,571 to £50,270 in England, Wales and Northern Ireland; Scotland has different bands. Suppose, again as an illustration, someone's other income already uses their whole Personal Allowance and they sit in the basic rate band. In the first row, the allowance cuts taxable profit by £400 compared with actual expenses, so Income Tax at 20% falls by £80. In the third row, using expenses instead cuts it by £400 the other way, also £80.

An HMRC example with two sources

HMRC's manual includes an example of someone with two small trades and some losses brought forward from earlier years, where how the allowance is divided changes the answer. The person has £1,200 of income from selling produce and £800 from teaching lessons, with £500 and £100 of expenses and £800 of earlier losses. The manual shows three results: with no election, total taxable profit is £700; electing partial relief and applying the £1,000 to the produce first gives £800; applying £800 to the lessons and £200 to the produce gives £200, the lowest. The point for sellers is that when there are several income streams, the allowance can be allocated between them and the best split is not always obvious. The manual says partial relief is applied by the individual choosing how to share it, within limits.

6. When you cannot use it

GOV.UK lists income that rules the allowance out for the year. You cannot use the trading allowance if you have trade or property income from:

a company that you or a connected person owns or controls,
a partnership in which you or a connected person is a partner, or
your employer, or your spouse's or civil partner's employer.

The manual states that someone with income inside any of its listed exclusions (which also include rent-a-room receipts) is not eligible for the allowance on any source of trading or miscellaneous income for that tax year. It is all or nothing. GOV.UK also says the allowance does not apply to trading income from a partnership. For an eBay seller, the unusual cases are the ones to think about: a person selling goods through a company they control, or one who sells to their own employer. In most dropshipping setups none of these apply, but if you operate through a partnership with a friend or relative, or a limited company, the allowance is not for that income.

7. What else it touches

National Insurance

The manual says the allowance is deducted when working out trading profits for Income Tax and that the same figure is used for National Insurance, so no Class 4 contributions are due on income covered by the allowance. It also says that if a trade's receipts do not exceed the allowance, profits are treated as nil, below the Small Profits Threshold, so Class 2 is not payable, although voluntary payments remain possible. For 2026 to 2027, GOV.UK gives the small profits threshold as £7,105 and Class 4 as applying to profits above £12,570. Our post on National Insurance when you are self-employed on the side goes into those.

Benefits and other income-based charges

GOV.UK says claiming the allowance reduces taxable income for tax credits, the High Income Child Benefit Charge, student loan repayments and Married Couples Allowance, and that it does not affect income for Universal Credit. HMRC's manual adds that for the child benefit charge, adjusted net income is reduced by the trading allowance claimed.

Capital allowances

The manual says you cannot deduct allowable expenditure, including capital allowances, in a period where you claim the allowance, and that using it does not affect your ability to claim capital allowances in future years. If you buy a large item for the business, such as a laptop, the choice for that year needs thinking about.

8. The dropshipper's version of the question

A dropshipper's costs are mostly the item cost, eBay fees and postage to buyers, which are all expenses that scale with sales. In the table above the allowance was best only when real expenses were below £1,000. A seller whose cost of goods and fees are most of the sale price can easily have expenses above £1,000 once turnover grows, and in those cases the actual expenses route gives the lower taxable profit.

That has a practical consequence for record keeping. If you plan to use actual expenses, you need evidence of them. GOV.UK says allowable expenses include goods for resale, things you buy to sell on, and also insurance, bank charges, advertising and subscriptions to trade or professional journals. It also says that if you use the allowance you cannot claim any of those. Our post on what counts as a business expense goes through the categories, and bookkeeping for a dropshipping shop covers the habits that make the evidence easy to find at year end. Knowing your real margin per order also helps, which is what the fee calculator is for.

A simple annual check works for most sellers:

Add up gross trading income from every source for the tax year.
If it is £1,000 or less, keep records and consider whether a loss election is worth asking about.
If it is more, register for Self Assessment and total your allowable expenses.
Compare those expenses with £1,000 and claim whichever gives the lower taxable profit, remembering the choice is yearly.

9. Records, even under the line

GOV.UK says that even with full relief you must keep records of the income, such as invoices, bank statements or a spreadsheet of receipts, and that HMRC can charge a penalty if records are inaccurate, incomplete, unreadable or not kept for the required period.

10. Common mistakes

Treating it as £1,000 of tax-free profit. It tests gross income, and it is an alternative to expenses.
Claiming expenses and the allowance together. GOV.UK says you cannot.
Assuming costs bring you under the threshold. A £1,100 turnover with £700 of stock still needs registration.
Forgetting other platforms. The test covers total relevant income, not each marketplace separately.
Using it for partnership or employer income. Those are excluded.
Ignoring the loss. Under full relief a loss is treated as nil; a real loss may be worth claiming.
Assuming platform reporting tells you what you owe. eBay's thresholds decide only whether eBay reports you.

For a wider view of the return itself, read our Self Assessment walkthrough for eBay sellers.

Sources and how we checked

Facts in this guide were checked against these official pages in October 2026. Rules and figures change, so confirm anything that affects a decision. This is general information, not legal or tax advice.

Questions people ask

Is the first £1,000 I earn on eBay tax-free?

Only in a limited sense. If your gross trading income for the tax year is £1,000 or less, full relief generally means you need not tell HMRC, though you must keep records. Above £1,000, you must register and choose between the allowance and your actual expenses.

Does the £1,000 test use profit or sales?

Gross income, meaning the total before any allowances or expenses are taken off. HMRC's manual says relevant income is measured before any expenses are deducted, so the cost of stock does not lower the figure.

Can I claim expenses and the trading allowance together?

No. GOV.UK says that if you claim the allowance you cannot also deduct other expenses or allowances. You choose whichever gives the lower taxable profit, and you can choose year by year.

When is claiming expenses better than the allowance?

When your allowable expenses are more than £1,000 and your income is over £1,000, the allowance deducts only £1,000, so actual expenses leave a lower taxable profit. For a stock-buying reseller that is common.

Who cannot use the trading allowance?

GOV.UK says you cannot use it if you have trade or property income from a company you or a connected person owns or controls, a partnership you or a connected person is in, or your or your partner's employer.

Can I use the allowance if I make a loss?

Under full relief a trade loss is treated as nil. GOV.UK lists wanting to claim loss relief as a reason to register for Self Assessment, and HMRC's manual describes electing for full relief not to apply. Ask HMRC before choosing.

The £1,000 Trading Allowance: When It Helps eBay Sellers and When It Does Not