£1,000 Trading Allowance or Expenses on £16,000 Turnover
Calculated comparison of the £1,000 trading allowance against £400 of actual expenses on £16,000 sole-trader turnover.
Direct answer: On £16,000 of sole-trader turnover with £400 of allowable expenses, the £1,000 trading allowance produces the lower tax bill, saving about £156 a year in this scenario.
Assumptions: One sole-trader business in England, Wales or Northern Ireland; 2026/27 rates; no other income, pension or student loan; the allowance cannot be combined with actual expenses for the same trade.
The calculated comparison
| Choice | Taxable profit | Income Tax + Class 4 NI |
|---|---|---|
| Actual expenses of £400 | £15,600 | £788 |
| £1,000 trading allowance | £15,000 | £632 |
| Lower-tax choice | Trading allowance — saves £156 a year |
Why the choice matters
The trading allowance is a flat £1,000 deduction from gross turnover, claimed instead of — not in addition to — actual business expenses. When real expenses are below £1,000, the allowance usually reduces taxable profit by more; when expenses are higher, claiming them individually usually wins. Here expenses of £400 are below the allowance, so the comparison turns on which deduction is larger.
Remember that the allowance changes taxable profit, not real cash: expenses still leave the business bank account whichever election is made for tax. The election applies per trade and can be changed between tax years, so it is worth re-checking annually as costs change.
Checks before electing
- Compare total allowable expenses against the flat £1,000 figure each year.
- Keep receipts either way — the winning choice can flip as the business grows.
- Property income has its own separate £1,000 allowance.
- The election affects profit used for payments on account and MTD reporting.
Official references and calculators
Figures use the 2026/27 Income Tax rates and HMRC's trading allowance guidance. Run your own numbers with the self-employed tax calculator and the multi-income tax calculator.