Hobby or business?

[stiofanpadraigcrafts]

At what point does your turning go from a hobby to a business. If you already have a full time job but turn in your spare time then sell these items are you a business? If so, at what point do you register as a business and register to pay taxes? If you do a few craft shows and use a website or Etsy/Ebay when does it change from personal to business. Any and all info welcome guys and thanks in advance.

 

[Midnight_Turner]

Depends on what you currently earn as a salary, in the U.K., you are allowed to earn up to around 12k a year tax free. If your current salary exceeds this then yes officially you need to register as a business, and declare all earnings etc. This can be a very painful process, however the reason may some choose not to do it is if you are in the maximum tax bracket and pay 40%, and you sell a slimline bog basic pen for a 5ver, by the time you've taken your expenses out and kept your tax to one side, then you've probably made about 20p... well done you!! So the sad fact of the matter is don't turn it in to a business just yet, like me, keep the pens as presents/gifts until you hit retirement age when you are out of that 40% bracket and you can start doing the craft fairs with your massive stockpile of pens. The real answer to this question depends upon your individual circumstances, but I am not a tax or financial expert, I can just share my individual experiences, hope that helps?


Sent from my iPhone using Tapatalk

 

[Penpal]

The laws in this country are different the consensus is to continue to sell for what you choose as long as you can until there are benefits real nto be gained by business registration.It will never affect me.

Peter.

 

[fingwe]

In the UK, I believe that you should tell the taxman as soon as you start selling, regardless of how much, or little, you're making. You won't be charged tax unless your total income goes over a certain amount, but HMRC likes to be told regardless. Of course, in practise, you're not going to tell them if you sell the odd pen here and there, but if it becomes a regular thing, I'd tell them, just in case.

There's a good write up here Everything you need to know about tax if you sell craft online -

 

[Walter]

The link Melanie has provided tells you all you need to know, but in practice unless you are selling hundreds of pens you will be making a loss after all expenses are taken into account.

Few hobby pen makers need worry about the taxman. He has bigger fish to fry.

Trust me, I am an accountant.

 

[Vic Perrin]

There have been some changes in the Tax System which started on the 1st April 2017. An allowance of trade up to £1000 has been granted to cover hobby sellers etc. If you go onto the HMRC web site you can see the full details. Here is a link detains the info .

Income Tax: new tax allowance for property and trading income - GOV.UK

Tax Boost for Hobby Businesses and Entrepreneurs

 

[wm460]

Leave the tax man out of it he will only waste it.

 

[Phil Dart]

Just to clarify - you don't register the business with HMRC, you register yourself with HMRC for self assessment, as your activities will be classed as self employment. You only need to register the business if it is something more than just you operating as a sole trader, which in the case of most people here is, realistically is likely to be restricted to maybe a partnership. In that case, both (or all) partners need to register for self assessment AND you need to register the business as a partnership.

Whichever route you go down though, you must register before October in your second financial year of trading in order to avoid being fined if you are found out.

If you ARE making a profit, it's worth considering the partnership route. The onus of responsibility, to all intents and purposes is no different to being a sole trader, but it means that for tax purposes, on paper, your profits are divided amongst the partners, meaning that effectively, if there are two partners you have twice the amount of personal allowances. It's worth considering.

I have to tell you now, that a prominent member of this forum, who for obvious reasons I'm not going to name, has within the last two months been investigated for his pen selling activities going back over several years. He has been presented with a bill for over £5000 which includes various fines for not registering for self assessment.

Markets, fairs, forums, ebay, facebook, etsy, websites etc are all public places. It is easy for HMRC to find us all. They are currently having a purge on ebay I'm told. Tomorrow it may be your craft market. In reference to another thread here in the last day or so, registering for self assessment is also an excellent way to discover just how much you DO need to sell your pens for in order to make a profit.

 

[Buckeye]

...
I have to tell you now, that a prominent member of this forum, who for obvious reasons I'm not going to name, has within the last two months been investigated for his pen selling activities going back over several years. He has been presented with a bill for over £5000 which includes various fines for not registering for self assessment.

It is right and proper that everyone should pay their taxes or be punished financially, I wish they were as relentless going after the "Big Fish".

Peter

 

[Lons]

As Walter says, they have bigger fish to fry however, one of the reasons they do go after smaller people is because it's so much easier to get results and claw back money than it is from the big boys who have armies of accountants and solicitors to find the loopholes and a lot of small prosecutions add up to a lot of success. Whatever anyone might say, HRMC are target led!

Anyone who already pays income tax whether from earnings or pensions needs to declare profits from pen sales or they risk a knock on the door or nasty letter asking for an explanation. As far as I know that £1000 "allowance" is only useful to non tax payers but I could be wrong.

Phil is right, HRMC monitor social media and the internet and have software which searches for specific words and phrases so the content of this thread has possibly been picked up. Whatch what you write. :wink:
Wasn't me btw - I don't sell pens, in fact haven't made many this year.

 

[fingwe]

As far as I am aware, new laws were brought in a while ago to force marketplaces like Etsy and Ebay to hand over details of their sellers and their activities to HMRC. I'm sure that, at first, they'll go after the really big sellers, but over time they'll probably start going after everyone who looks like they sell as a business on there. I daresay that by now they'll have computer software which trawls through the data they receive and identifies people who list more than a certain number of similar items a year. Well, I would, if I were them.

Be safe, register for self assessment and avoid the worry of the knock at the door. It isn't that onerous to fill in if you're only making small sales.

 

[Walter]

I do agree that it is better to be safe than sorry and it would be foolish not to register for self assessment with HMRC if you are selling pens as a business.

However, if you do so, I would strongly advise using a more sophisticated method of calculating whether you are making a profit than the X times cost formulae so commonly suggested in forums and FB groups or you will end up paying tax on profit you have not made.

 

[Buckeye]

If you have not been registered for self assessment before don't forget everything you buy to make your pens can be offset against your tax. If you use cotton buds, paper towels, glue, envelopes, sellotape, lathes, tools etc. etc. etc. they can all be offset against your tax, even accountancy fees if you are wise enough to use an accountant, don't be frightened of it, just be thorough.

Peter

 

[Bucks]

We're luckily in a position with myself & my wife already being self employed gardeners, we are already registered for self assessment, I started a separate set of accounts for the pens & moulds etc & will give the figures to my accountant along with the gardening accounts to do the end of year reports.
I recon the way I've been spending/investing over this last 6 months it will go in my favour for tax reasons this year

 

[Bucks]

If you have not been registered for self assessment before don't forget everything you buy to make your pens can be offset against your tax. If you use cotton buds, paper towels, glue, envelopes, sellotape, lathes, tools etc. etc. etc. they can all be offset against your tax, even accountancy fees if you are wise enough to use an accountant, don't be frightened of it, just be thorough.

Peter

Also don't forget about all the indirect expenses like electricity costs for running these power hungry machines, light & heat etc also phone & internet, computers & mobile devices if used as part of the business!

 

[Lons]

Also don't forget about all the indirect expenses like electricity costs for running these power hungry machines, light & heat etc also phone & internet, computers & mobile devices if used as part of the business!

And a % of your property if you work from home so some of your council tax. I'm still registered for self assessment even though retired and as Melanie says, it's pretty simple really.
I'm sure Walter would give reasonable rates if you need an accountant. :wink:

 

[Penpal]

My guess is that big brother can and does read as well. Discretion in dealing is important. Be successful in what you seek.

Peter.

 

[Graham_C]

Top advice being given here guys. Great to see the community looking after it's own

 

[Bammer]

I'm sure Walter would give reasonable rates if you need an accountant. :wink:

Would that mean talking to him, or could you do it all by post .....

 

[Walter]

I'm sure Walter would give reasonable rates if you need an accountant. :wink:

Would that mean talking to him, or could you do it all by post .....

I am no longer providing accounting advice as part of my own tax avoidance scheme. Avoiding taking my income above the higher rate tax threshold.

Seriously, I have been retired and out of touch with changes to tax law for too long now to offer up to date advice. Needless to say when it comes to collecting money the Government and HMRC have plenty of advice on line. This is a good place to start:

Working for yourself - GOV.UK