When is a hobby actually a hobby? Will the taxman class you as a business?

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When is a hobby actually a hobby?

With the rise in Crafting as a hobby and a good source of income for many, watch out for your income limits!

You might think that selling second-hand items and crafts online is a hobby, but the taxman will class you as a business if it can prove you are doing “anything in the nature of trade”.

If you regularly collect items like antiques or bric a brac for resale , or sell home-made crafts online, you could be classed as a business.

So how do HMRC decide what is and what is not trading

They publish their “badges of trade” as below. Just one of these could be enough to show that you are trading.

If profit is your motive then Profit the taxman interested in you!  Any profits must be declared via a self-assessment tax return and filed online by January 31.

There is now an automatic penalty of £100 for filing a late return – even if no tax is owed – and you could owe up to £1,600 in penalties after a one-year delay regardless of how much tax you owe.

 

And VAT is another story !

 

 

So consider the following and if in doubt contact a tax adviser or accountant to discuss before its too late! ……Here’s a few areas to consider..

 

Is your main motive to earn a profit? If HMRC thinks you intended to make money, rather than selling items for fun, your selling activity is considered to be a business.

The number of transactions matter. If you repeat very similar transactions in a short period of time, this might be considered a badge of trade.

 

How did you acquire the item? If you received something as a gift, or an inheritance then you are unlikely to classed as a trade but once buying and selling becomes a greater interest or addiction! then watch your hobby passes HMRC Sniff test and make that declaration to them!

If your online transactions are similar to an existing type of business, such as a lingerie retailer or furniture seller, this may be used by HMRC as evidence that you are trading.

 

If you modify items before selling them, again this is a badge of trade. Do you buy fabric and make cushions to  achieve a greater profit?

 

How did you carry out the sale? If you sold an item in the same way as a shop or auction house – where customers agree to “buy it now” and the price you set  – you could be classed as a business.

 

If you borrowed money to buy stock by way of a bank loan this is evidence of trade.

 

 

 

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