Rules and regulations for making money from a hobby
A hobby can mean something different for everybody, whether it’s simply something meant as a distraction from the hustle and bustle of every day life, or done in the pursuit of a lifelong interest. Some even take it to the next level and explore ways to make a little extra money on the side. We’re looking at the ins and outs of the world of hobbies, and how you can go that extra mile and turn that interest or pastime into a viable business option.
It’s clear to see that almost any hobby can be turned into a business providing you’re offering something that most people are going to want, and depending on your level of skill and how much spare time you have, there is definitely some scope for creating profit.
Of course, anything to do with earning money has to run through the proper channels, adhering to the laws and regulations in place by HM Revenue and Customs (HMRC) in the UK. So here is a quick stop guide for you to take these rules and regulations into account to ensure that what you’re earning is perfectly above board and legitimate.
As far as HMRC is concerned, you can be considered self-employed even if you already have a job, or even if what you’re doing is not making any profit at all. You can even be classed as self-employed if you don’t end up spending any of the money that you eventually make, so it’s very important to be absolutely sure and that you follow the correct guidelines.
The official HMRC guidelines are as follows; you are considered self employed if you:
- Run the business for yourself and take responsibility for its success or failure.
- You have several customers at the same time.
- You personally decide how, where and when you work.
- You hire other people at your own expense in order to help you either make or sell your goods.
- You agree on any fixed price for what you’re offering.
- You sell these goods or services in order to make a profit.
You might not think that you’re running a business empire, but as long as you are trading with the intention of earning money there is a good chance that HMRC will consider you to be self-employed.
As previously mentioned, depending on how profitable your hobby is, you may need to consider the tax implications. As a general rule, if any money at all exchanges hands the HMRC calls it a “profit seeking motive” and whether you’re making a profit or not, you will need to register as self employed. So what you need to do is follow this link and have your NI number and business details to hand such as address and the date you started trading.
So what happens now? You’ve established that your hobby has evolved to the next step and that you are officially considered self-employed (even if you have a regular job, remember), you’ve registered with HMRC, and now it’s time to make some money. Once things are off the ground you must, must, must remember to keep records of any and all business incomes and outgoings in order to correctly pay your taxes. This means any receipts for equipment or supplies needed, and proof of sales for every single transaction you make.
Should you want to take your goods on to the street (on a stall in a marketplace for example) you will need to contact your local council who may require you to apply for a street trading licence and even pay a fee.
Now that you’re self-employed you will be required to complete a self assessment tax return each year and pay any tax that’s due. This only applies if your earnings exceed the personal allowance of £10,600 (which is important to bear in mind if you have a regular job as well, as this makes it more likely that you’ll be earning more than that). Taxes are usually paid in 2 payments on the 31 January and 31 July, and you can use the official HMRC tax calculator to help you correctly budget for this.
The government have been taking all of this very seriously in recent years, clamping down on the 1 in 5 adults who are considered “hidden entrepreneurs” and as such aren’t correctly paying their taxes.
With some hard work, a ton of research, and a little luck, you can turn any hobby into a viable source of income, just remember that it’s extremely important that you follow the correct rules and regulations that are in place as you don’t want to be unknowingly breaking the law and ending up with a hefty fine.