What the allowance covers
The trading allowance lets you earn up to £1,000 of gross trading income in a tax year without declaring it to HMRC. It covers casual income such as selling goods online, small jobs, and hobby earnings. It does not cover employment income, rental income, or dividends, which have their own rules.
You can also choose to use the allowance instead of deducting actual expenses. If your genuine expenses are above £1,000, claiming actual expenses is usually the better answer; if they are below it, the allowance is simpler.
When it stops being 'casual'
Once gross income from a trading activity passes £1,000, you must declare it, either by registering as a sole trader or on a Self Assessment return you already file. Regular, profit-seeking activity can also make you self-employed in HMRC's eyes regardless of the amount, and Making Tax Digital rules will then apply based on your income level.
If you already file a Self Assessment return for another reason, there is no benefit in leaving small income out of it. Declare it, claim what you can, and keep your record clean.