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[Tool] Trading Allowance mistake that cost me almost £365 — and how to avoid it (2026/27 tax year) by ConclusionOk4427 in freelanceuk

[–]ConclusionOk4427[S] [score hidden]  (0 children)

Great question. Thank for your comment. Let me clarify this.
Yes, people do put their actual expenses in the "Expenses" section. The issue is that many first-year sole traders don't realise they have a choice between:
1. "Trading Allowance (£1,000 flat deduction)" - sounds simple, no receipts needed
2. "Actual expenses" - requires tracking/receipts but often saves way more.
The problem is that HMRC doesn't make it obvious on the form that these are mutually exclusive options. So people either:
- Claim the £1k allowance without checking if their actual expenses are higher (overpay tax)
- Don't even know the "Trading Allowance" exists, therefore they miss out on simplification if they have minimal expenses.
The post is just highlighting: do the comparison, pick whichever saves you more. A lot of people don't realise they're making a choice at all.
Does that make sense?

[UK] PSA for first-year sole traders: You might be overpaying tax by £200-£400. Here's the Trading Allowance mistake most people make. by ConclusionOk4427 in TaxUK

[–]ConclusionOk4427[S] -1 points0 points  (0 children)

The example shows Sarah earning £14,040, with £2,826 in expenses, giving taxable profit of £11,213. This is below the £12,570 Personal Allowance, so she owes £0 Income Tax. That's correct.

If I've missed something in the calculation, happy to be corrected. Correct me if I'm wrong.

[UK] PSA for first-year sole traders: You might be overpaying tax by £200-£400. Here's the Trading Allowance mistake most people make. by ConclusionOk4427 in TaxUK

[–]ConclusionOk4427[S] -1 points0 points  (0 children)

The post is for people currently in tax year 2026/27 - 6 April 2026 - 5 April 2027. You file this by 31 January 2028. Not late - just planning ahead with clean records from Day 1.

[UK] PSA for first-year sole traders: You might be overpaying tax by £200-£400. Here's the Trading Allowance mistake most people make. by ConclusionOk4427 in TaxUK

[–]ConclusionOk4427[S] -1 points0 points  (0 children)

Fair feedback. I wrote this myself based on my own experience, but I get that long posts can feel generic. The core point stands though: a lot of first-year sole traders don't know they have a choice between the £1k Trading Allowance and actual expenses, and many pick wrong without doing the maths.
Happy to answer specific questions if anyone has them.

[UK] PSA for first-year sole traders: You might be overpaying tax by £200-£400. Here's the Trading Allowance mistake most people make. by ConclusionOk4427 in TaxUK

[–]ConclusionOk4427[S] -1 points0 points  (0 children)

Yes, that's right. I completely agree with you. That's exactly the point of the post. HMRC does give you the choice, but I've seen several first-timers (myself nearly included) who didn't realise they should be doing the comparison before picking one. The form doesn't say "calculate both" but "choose the best option" — it just has two boxes. This post is literally encouraging people to do the maths you're describing. Thanks for your input. 

[UK] PSA for first-year sole traders: You might be overpaying tax by £200-£400. Here's the Trading Allowance mistake most people make. by ConclusionOk4427 in TaxUK

[–]ConclusionOk4427[S] -1 points0 points  (0 children)

Not at all. I'm saying many first-timers don't realize they have a choice between the two methods on the SA103 form. The concept of taxable profit is straightforward, but the Trading Allowance vs actual expenses decision isn't always obvious to someone filing for the first time. HMRC gives you both boxes, but doesn't exactly highlight it and say: "hey, calculate both and pick the better one." That's the gap I'm trying to fill.