The answer is there is no precise definition of what a business is and the line between hobby and business can be blurred.
The main things to think about when deciding if your hobby has become a business are known as “badges of trade”. These include:
- Do you intend to make a profit?
- Does the number and frequency of similar transactions suggest you are running a business?
- Did you buy or make goods to sell them?
- Do you advertise?
If any of the above apply it is possible your hobby has become a business and you need to inform HMRC. This must be done by 5 October after the end of the tax year in which you started trading.
If you are trading you will be liable for tax and national insurance contributions if you earn over certain thresholds. Whether or not you make any profit you will still need to register and keep records of all your sales and expenses. Any profit you make will be taxable if your total earnings (including any other employment) exceed the personal allowance (£9,440 for 2013 -14, £10,000 for 2014-15). You will then be required to complete a Self-Assessment return each year, the deadline is 31st January. This can be done on line or Simply Balanced Solutions file it for you.
Remember if you don’t inform HMRC you could incur a failure to notify penalty which may cost you up to 100% of the tax due plus the tax you owe. It’s easy to do and can be done online, if you are not sure what to do get in touch and we can advise you.
Simply Balanced Solutions can help with self-assessment and setting up record keeping systems for you, or you can give all your receipts and paperwork to us and we will turn it into useful financial information! Whatever you need we can help so give us a call on 02392006466 or email for a quote.