What is Trading Allowance?
A £1,000 annual tax-free allowance for miscellaneous income, which includes bank switch bonuses. If your total switch bonuses are under £1,000 in a tax year, you pay no tax on them. This is separate from your Personal Savings Allowance.
The trading allowance, introduced in the 2017/18 tax year, lets an individual receive up to £1,000 of gross trading or miscellaneous income per tax year with no income tax to pay and — where total income of that kind stays under the threshold — nothing to report to HMRC.
Its relevance to switchers is as a backstop for bank incentives. HMRC generally treats one-off current account switch bonuses paid to personal customers as outside income tax altogether; where an incentive is taxable as miscellaneous income, the trading allowance can cover the first £1,000 of it in a year. Either way, a typical year of switching sits comfortably inside the allowance.
It's a different allowance from the Personal Savings Allowance, which covers interest, and from the identically-sized property allowance, which covers small rental income. Each operates independently, so using one doesn't reduce the others.